Air France-KLM : Watch out for air turbulence

Publication date 08/05/2018 15:12 - Writing date 08/05/2018 15:10 - - - - - - / - - - Equity data - Reco : Reduce - Target : 7.20 EUR - Equity analyst: Yan Derocles - [email protected] - +33 (0)1 44 51 88 57 - ESG analyst: Valentin Pernet - Corporate Governance: Moderate risk (3) - - The bond market reacted violently when CEO Jean-Marc Janaillac announced he was stepping down and when the group was unable to settle the labour conflict within Air France. Yesterday, in a context of low liquidity (UK markets closed), the prices of senior 2021 and 2022 AFFP bonds tumbled by 8 pts during the day. The perpetual bonds suffered a little less (-6 pts) as the 500bp step-up is deemed as a strong incentive to redeem bonds from the first call in 2020. - Air France-KLM's situation does not seem to justify such a sanction even though our credit opinion is revised from Positive to Stable given this prolonged conflict with unions which will probably weigh on the group's profits this year. Admittedly, the prolongation of strikes and governance crisis will create uncertainty and volatility in the coming months, while continuing to reform Air France so that the company can shield its European market share remains an urgent task. Nevertheless, the group's financial health still offers enough comfort in our opinion. Air France-KLM is likely to maintain positive free cash flow this year, even when integrating the impact of the strikes. Also, the group delivered a real deleveraging effort over the past two years, while maintaining adequate liquidity. - >