Investment bankers are sharply split over Air France's ability to secure a strategic airline investor and Air France's advisers have retreated from supporting a trade sale after the collapse of its planned Alitalia agreement.
Air France plans an equity issue of FFr18 billion (US$2.9 billion) in 1998. The French government has agreed to sell some 40 per cent of the state-owned airline, withdrawing its opposition to loss of control which prompted the resignation of Air France chairman Christian Blanc last October.
The French treasury, which controls the government's stake, invited bids from financial advisers in the second week of January and expects to select the deal leaders by the end of February. Air France has already appointed investment bankers Banque Lazard to advise it on the sale.
More than 50 banks have planned submissions to the treasury, which is expected to appoint a team of three - headed by a French bank - to lead the sale. The initial terms of reference call for 20 per cent to be offered to employees, with half of that earmarked for pilots in exchange for a 15 per cent pay cut. This leaves around 20 per cent for trade or institutional investors, or a retail offer.
Air France's advisers accept there is little interest from European airlines but the carrier had hoped to attract US or Asian partners on the back of a deal with Alitalia establishing Air France in a European airline alliance. Alitalia's favouring of KLM over Air France as a commercial partner (see story, right) has pushed the airline towards favouring an initial public offering to the domestic retail market.
Other investment banks believe the government's continued reluctance to cede control of the airline, and doubts that the pilots will accept a shares-for-pay cuts offer, will push the treasury towards seeking long-term investors.
The airline is tight-lipped about its preferences but says it would like to increase the company's equity base to finance fleet renewal. Air France is scheduled to receive two Airbus A34Os and two Boeing 777s in the second quarter to 30 September. Long-term debt dropped FFr800 million over the period to FFr15.3 billion against paid-up equity of FFr17 billion. Air France sources indicate it would like to increase equity by FFr6 billion with the proceeds of a share sale.
Management also believes it can capitalise on France's increasing enthusiasm for equities by consolidating the financial turnaround under new chairman Jean-Cyril Spinetta. Air France Group tripled net profits to FFr1.76 billion in the six months to 30 September 1996. Revenues climbed nine per cent and, with an 0.3 per cent fall in capacity, cost increases were kept to 3 per cent despite a 12 per cent increase in fuel prices.
Source: Airline Business