China Eastern Airlines and Delta Air Lines will each acquire 10% stakes in Air France-KLM by subscribing to new shares through capital increases totalling €751 million ($876 million), under new wide-ranging partnerships announced by the SkyTeam partners today.
The investments, together with Air France-KLM's own planned acquisition of a 31% stake in Virgin Atlantic, underpin two major new partnerships for the airline.
Under a memorandum of understanding signed today, Delta plans to bring its two existing transatlantic joint ventures - one with Air France-KLM and Alitalia, the other on UK routes with Virgin Atlantic - into a single joint venture between Air France-KLM, Delta and Virgin.
Separately Air France-KLM is deepening its partnership with China Eastern Airlines. While this is in line with Delta's partnership strategy - the US carrier holds a 3.2% stake in China Eastern - the Franco-Dutch company says this co-operation "does not call into question" its current joint venture with another Chinese SkyTeam partner, China Southern Airlines.
"This partnership which is unprecedented in scale gives Air France-KLM a leadership position in the worldwide airline industry," says Air France-KLM chief executive Jean-Marc Janaillac. "With Delta and Virgin Atlantic we are reinforcing our transatlantic alliance, making us the number one alliance between Europe and the United States in terms of traffic.
"With China Eastern, we are consolidating our position on a high-growth market," he says.
Delta and China Eastern will subscribe equal amounts to two reserved capital increases totaling €751 million at a subscription price of €10 per share, enabling them to acquire 10% each of the Air France-KLM share capital. Air France-KLM says this price represents a 42% premium relative to the average share price over the last 12 months.
These capital increases are subject to Air France-KLM shareholder approval, which will be sought at an extraordinary shareholder meeting on 4 September.
"The subscription agreements signed separately with Delta and China Eastern, who are not acting in concert, have a 25-year duration and include a commitment by the partners to retain their shares subject to a number of exceptions and not to purchase shares potentially leading to the crossing of 10% threshold in the share capital for five years," Air France KLM says.
"These capital increases will enable an improvement in Air France-KLM’s financial structure, accelerate the reduction in its net debt and finance the purchase of the stake in Virgin Atlantic," it adds.
Air France-KLM plans to acquire a 31% stake in Virgin Atlantic for around £220 million ($287 million), which would make it the UK carrier's second largest shareholder behind 49% stakeholder Delta. "This transaction should take place in 2018, after approval by the relevant regulatory authorities," Air France-KLM says.