Air France-KLM nears bailout with improved guarantees - sourcesAir France-KLM nears bailout with improved guarantees - sources
FILE PHOTO: Logo of Air France KLM Group is pictured on the first Air France airliner’s Airbus A350 during a ceremony at the aircraft builder’s headquarters of Airbus in Colomiers

By Laurence Frost and Arno Schuetze

PARIS/FRANKFURT (Reuters) – Air France-KLM <AIRF.PA> is moving towards a 10 billion euro ($10.9 billion) government-backed rescue deal, sources said, after France agreed to higher guarantees on loans designed to tide the airline group through the coronavirus crisis.

Paris is ready to vouch for 90% or more of the bank loans to Air France, rather than the 70% initially offered, two people with knowledge of the matter told Reuters. The increased guarantees were first reported by La Tribune on Wednesday.

Air France-KLM representatives and the French finance ministry declined to comment.

Major airlines including Germany’s Lufthansa <LGAG.DE> are negotiating government aid deals as they grapple with the global air travel shutdown and deep uncertainty over the recovery outlook once the virus pandemic eases.

Banks had been holding out for an improvement on the 70% French guarantees offered for about 4 billion euros in loans to Air France, to be accompanied by close to 2 billion euros in Dutch-backed lending to KLM, Reuters reported on April 3.

The entire package for the Franco-Dutch airline group as a whole now amounts to about 10 billion euros, two sources said.

In addition to the guaranteed bank loans, Air France is likely to draw on a government emergency fund, increasing its total support to about 8 billion euros, according to French media reports.

Group Chief Executive Ben Smith is preparing to accelerate a planned restructuring of the Air France short-haul network and the expansion of low-cost division Transavia, La Tribune also reported on Wednesday, leading to possible job cuts in France.

(Reporting by Laurence Frost and Arno Schuetze; Additional reporting by Anthony Deutsch in Amsterdam; Editing by David Goodman)