Earnings Call: Q3 2020

Oct 30, 2020

Good day, and welcome to the to the conference call for Air France KLM Group Third Quarter 2020 Results Presentation. Today's call is being recorded. And now, I would like to turn the conference over to Mr. Benjamin Smith, CEO of the Group Air France KLM. Good morning, everyone. I'm here together with Huntley Guy, CEO of Alcross, Peter Elbers, CEO of KLM and Frederic Hajier, Afroff KLM Group CFO. We would like to welcome you to the KLM's 3rd quarter 2020 results call. The unprecedented crisis caused by COVID-nineteen has triggered a global industry restructuring in which airlines are forced to make bold decisions. This is significant implications for our group. Our employees our customers, our shareholders, and indeed, all stakeholders. I'd also like to take this opportunity to thank all at France KLM, Hop, and Hansavia employees during these very difficult and unprecedented times. I'm so pleased to have them as our number one asset as we seek the security continued support from all our stakeholders, including the French and Dutch government The hard work and dedication of our employees is what makes the difference for us and is what will help us successfully transform into a stronger more powerful European champion following this crisis. The CEOs about France and KLM are here today with us to provide insights on the airline objectives and the latest status of the respective transformation plans. 2nd, both the Dutch and French governments provided financial support packages to the Aflac KLM Group, and its airlines in order to enable the airlines to restructure and ensure the survival of our businesses. I'd like to thank both governments for helping best ensure we have enough liquidity to maintain operations during this challenging period. As we've been mentioned before, the increase in the debt burden will require significant changes to our business in order to render them more profitable by reducing costs and increasing flexibility. Saturday will provide you with more information regarding upcoming financial operations. I suggest we go through the Q3 20 20 results relatively quickly and then focus on the transformation plans and the financial operation. The team and I will do our utmost to provide answers to After a promising recovery during the summer, particularly in the short and medium haul network, the gradual closure of international borders in the second half of August and the resurgence of the pandemic affecting customer travel demand strongly impacted our revenues in the third quarter of 2020 at 1000000000 down substantially at index 33 compared to last year. Thanks to strict cost control and acceleration of the implementation of cost reductions, The group mitigated the size of the operating result to a loss of 1,000,000,000. We have continued with cash preservation measures, and at the end September, we had 1,000,000,000 in cash at hand, which is 1,000,000,000 less compared to the end of last to provide further details on the financial impact on the third quarter 2020 financial results. Thank you, Ben. I propose you to go page 4, which is a global view of the results for this quarter. From a reasonable interest in the slide, it is a title, a decline of 1,000,000,000 in terms of revenue and only quoted, of course, a 2,000,000,000 in terms of EBITDA. You remember that at the beginning of crisis, a lot of airlines have tried to give you some, idea about what part of the cost could be all manageable or variable because linked to the capacity. And I see that the ratio from 5 to 2 is a good indication that in fact, in normal time, if you work correctly, you are able to manage at least 50% or even more than 50 after the decline in your revenue, by working on your cost and by optimizing your capacity. So this is clearly what we have done during the quarter with, again, revenue, which is moving from 7.6to2.5, which is course, the totality of dramatic figures. It is more than 50% reduction of the turnover. The fuel expense is down at a surprise EBITDA as indicated by then, we move from, +1.6 past year, San Diego 2, minus 400,000,000 in Q3, twenty twenty, which is a reduction of EUR 2,000,000,000 compared to last year. Operating result is also EUR 2,000,000,000 compared to last year. It was pushed to under year -1 in Q3 2020 and of course, the operating margin is going now, not a surprise. In terms of net income, it is a bit lower. Extendingly, which is later by the restructuring provisions we have taken mainly concerning the vulnerability part of your plan since quarter into Air France. So I go page 5 just to indicate that the profile of the summer was not was not absolutely equal. In April, May, June, you have seen progressively a slight improvement of the EBITDA from 100,000,000 in April, which was the beginning of the crisis to minus 200,000,000 in June. July always continue to improve compared to the end of the Q2. But, and it is, of course, a quite important information. We are all being disappointed by the level of the demand in September. You remember, perhaps, at the beginning of crisis, a lot of airlines were expecting a possible improvement of the situation by the end of the year. Bev Kelly, the Egypt of September show that after the peak of the traffic, during the summer, there is no more business people entering the aircraft and that recovery And the compensation of the, the incentives from the summer by business in September is not there. Which explains that the EBITDA in September is deteriorating compared to July August In total, however, the Q3 has been a bit better since Q2. Just one important indication is the low factor. In second quarter, it was 37 percent or extremely low. If we think about the standard of the industry before the crisis, And in Q3, growth factor for the group, the entire group, excluding Transavia, was at 46%. So it was a bit better than Q2. But we are also quite confused about what will happen in Q4. I move page 6 And just to give you 2 or 3 indications, first, clearly, the 2 sorry, all the subnetworks are not equal. It's clear that the friends domestic, medium haul, Caribbean, Indonesia, and Africa, we have a group for many, many reasons. You know, course, has some competitive advantage. Let us call that in such a way. You see that Gerard keys between minus 2021 to minus 40 percent. So clearly, there is some privilege to assume network where the constraint in terms of traveling of the safety conditions are sufficiently equal such that it has been possible people visiting their family going back to their country for the holidays has been possible such that there has been limited traffic, but there has been some traffic. Traffic still negative, of course, minus 64 of transformationalistic, minus 60 for medium haul, minus 60 or minus 79 for Africa and Caribbean, but it was far better than what we had in the other long haul networks. North America, the traffic is minus 90. Latin America is the same and Asia is the same. So clearly, when there is not homogenization of the safety rules, And where the situation between countries are not similar. Clearly, there is a behavior of passengers consisting not to travel. All the travel is difficult for rules. And because of that, of course, you see the big the big difference in performance between these various subnetworks. Another information you to keep in mind is that globally speaking, the yield has developed positively. So when we have worked extremely negative, as you see on the bridge 6, You have also to keep in mind that at the global, local network, and it's true for each chip networks, the yield has developed positively during the Q3. Last info coming from this page 6, the difference, of course, not a surprise between premium and economy, you see that that's the top right part of the slide, premium harassed is at minus 60 three percent. So premium travelers are not coming back especially at the, end of the quarter. And economies, of course, negative, but a bit less. Only quoted and quoted again minus 40%. I move page 7 just to present, I will say, the only good news for this quarter the fact that we, in fact, not a recovery, but a good behavior of the cargo, cargo activity for the group We have benefited, 1st, of the strong increase of the cargo yield. During this period due to the reduction of the capacity available for cargo transportation. You have seen quite positive development of the yield in the industry. And I will say that Air France CLM has been taken in a very agile way to try to take in part of this development of the activity and development of the yield by increasing and managing significantly as cargo capacity by using extensively the full hydro fleet or by developing also what we call the mini cargo flights, which are flights using passenger aircraft, but where there is no passenger, but only cargo. If I go to page 8, you have the result of scenarios command on the economic performance per business. Network capacity down, unit revenue down and the dramatic decrease of the revenue, minus 77% for the cargo due to the sharp increase of the unit revenue at plus 107% you see that the revenue is even increasing compared to last year, which is, of course, a remarkable performance. It is matching a bit or compensating a bit for the equipment situation concerning the passenger, but all in all, of course, the biggest part of the loss of the group directed quarter is explained by network. With minus 1,000,000 of operating result of Transavia, I would say not too bad in the currency accounts. You see a margin negative minus 5%, which is an operating result of minus 1,000,000, but in spite of sharp decrease also of the revenue. During the summer, we have seen some people traveling for holidays or for family purpose but all in all, the revenue is down minus 60% because we are flying less because our clients are flying less, not a surprise and maintenance. Turnover is also down minus 50% and the operating result. Is negative minus 100. Keep in mind, however, that we signed some contract with clients for maintenance, There has been some negotiation in spite of the period, and there is some new contract for this activity in the same terms, of course, the some contract with Shell Consult, or because the client is not booked or because there has been a renegotiation, So it's clear that the maintenance order book is lower than what we had, at the end of the year 2019. Just to give you an order of magnitude, the methanol order book was 1,000,000,000 higher end of December 19 compared to what it is today, but it is still yet quite significant at 9 point 3,000,000,000. I move page 9. Just to give as we do, usually, the split of the performance between the two company Globally, if you lose a 9 month per month, you see that KLM editor of operating reserve by 1 point 7, Air France by 2.7, which is more or less proportional to the relative size of the two carriers before the crisis. I move to Page 10, as I told you before, the link from operating reserves to net income is relatively simple. It is mainly explained by $565,000,000 of restructuring cost which are explained by the departure plan, in Air France for the ground staff. But also the effect of the contractual combination for air front flight attendants and pilot and also the departure plan for OCC. So effect of the over hedging is relatively limited and the effect of the fleet impairment also is limited during the quarter. It's mainly explained by the progressive failure of from Canada object at the up company. I moved page 11 I give before the link between the loss in terms of revenue and the evolution of the EBITDA, the 5% to 2%, You've seen that it is partly explained by, we think, relatively efficient cost control, which has been engaged by the 2 management at the KLM and at Air France, but also that's true supported by some mechanisms decided by 2 states, which is in the Netherlands and OW mechanisms. And in Air France, it is the which is allowing the company to save some labor costs, but the management work also as indicated in various presentation before on the control of the FTEs. And you have at the bottom left of the slide what we expect in terms of XT evolution between today and the end of the year. Between Q4 2019 Q4 2020, we expect already a reduction of the FTEs by 10% around 8, bit more than 8000 people, half for KLM, and half for air front. And, of course, in the next quarter years, you will have the full effect of some measures which are now to be implemented. And this is mainly the voluntary departure plan for brown people into Air France At the right of the slide, you see full estimate of the viability of the operating cost which is contributing to the control of the loss in spite of the reduction of the turnover. Slide 12 not nothing new in terms of presentation. It is the usual slide from the net debt evolution of COVID net debt is increasing. Due to the negative operating cash flow. And during the quarter, the debt has increased by a bit more than 1,000,000,000 that in total since the beginning of the year, it is more than 3,000,000,000, which have been added last to the net debt of the group. Page 13, just to remind you the good control of CapEx. Initial CapEx guidance we gave you at the beginning of the year was 3.6. CapEx plan reduction will be more than 1.5 So we continue to stick to our CapEx guidance for the full year at 2.1 and also relatively surprising result, which is a good development of the working capital, which is contributing positively to the cash evolution, even more than last year. For the 9 months 2019, we had working capital contribution of 1st 84 and for the 9 months 2020. The contribution is PRIS 6 from DUR66, which is explained by various, by various phenomena, as you can imagine. One is, of course, the fact that there is still a lot of tickets to be refunded. So from that, sorry, we made already significant step into the direction since March 2020, we consider that more than 1,800,000,000 of the tickets, of your house tickets. So it has been a way on board, but there is still a stock of vouchers and people can use also to the end of the next year, which are called by the client and another contribution to the evolution of the working capital is coming from the postpone mark of some payment or of social charge, for example, tax, but also negotiations with some supplier Outlook concerning the outlook, just concerning the capacity, It is not a surprise for you that we will reduce capacity compared to what we have done in the second quarter. Concerning Air France also following the announcement made by Mr. Macron 2 days ago and the new Confirmant measures decided air France now intending to have capacity below 35% as for the 4th quarter. The content in KLM, which is not impacted exactly in the same way. So KLM managed multi for the time being expecting capacity in the range of 45% compared to the same period of the last year. Of course, be sure that two management keeps a high level of flexibility, which means that if there is an adjustment to be the 2 way by the way, where we are done in Utah and figure out the amount. It is clear that all the flights we operate are considered as incrementally cash positive. I will say that in the days before any flight, his check is done by the proofreading of the group. And if we have the feeling that the flight is not positively providing cash, as flight is, it's canceled. So we really try to manage this capacity with a lot of flexibility. On the white, you see the expectation we have today using the forward booking. For the month of November, December, to be honest, the number are a bit less optimism that the SIMILAR numbers we give you at the communication on the second quarter which is clearly indicating that we have to be extremely cautious concerning the development of our capacity. Page 16, To give some conclusion to this presentation, 1st level of cash at 12,400,000,000 And we have 2 years thereafter at the cash which is today into the company and the other labor credit line We are from mainly the banks guaranteed by the states or from the states themselves, which is, I would say, compared to 2 peers in Europe or relatively comfortable that we see also that the cash went even in Q3 is relatively significant. Second element, it's clear that the Q4 EBITDA will be significantly below Q3 due to the environment due to the legal and rules, which are applied between the countries of the borders. We are not expecting, of course, the Q4 EBITDA improving compared to the already significant loss of Q3. Working capital probably will be less positive than what we had since the beginning of the year, because in the Q4, we'll continue to tickets and voucher if the clients want that. And of course, there is some bills to be paid that have been postponed sometime for 3 or 6 months, but some of them will be, to be we are on board between now and end of the year. CapEx will be limited $600,000,000. And for your cash forecast. Do not forget that we have reimbursed the hybrid drone of 400,000,000 In October 2020, thank you for your attention. I give back the floor to Ben. Hey, Matthew. How are you? A clear road map has been sent for each group airline. And the groups go forward plan started delivering results in 2019 with key significant steps forward across key areas. The group has also set a very specific 2030 commitment to reduce its global CO2 emissions per passenger kilometer by 50% compared to 2005 levels. And in addition, Alfalfrac is committed to go above and beyond this commitment an accelerated sustainable transition by doing the same on a shortened calendar on its domestic network by 2024. Which was a condition put in place by the French state as part of the loans, that will also put in place recently. We are 100% invested in the proven KLM global hub business model in a post COVID world. With an efficient and attractive hub in Amsterdam Skippel for local and transit customers, while supporting global links from Amsterdam to all major cities cultural shift. And the company transformation has been accelerated due to COVID. The domestic market will be fund leveraging some of the new flexibility that has been provided by the over 40 labor agreements that have been ratified. And I'm so pleased to note the positive and collaborative atmosphere and alignment shared by FS Haas and its labor partners, representing a significant step forward for Altais. The Transavia brand helps us connect the Netherlands and France to key leisure destinations This tool, including its attractive brand positioning along with the added flexibility, Tazavia France, now brings will help us better position ourselves to compete against low cost carriers in key markets not previously served. Going forward, Tom Fabienne will continue to grow and compete against these low cost competitors where there is demand for distinctive product soon to be further improved with the addition of benefits provided by our loyalty programs, Line Blue. Across the group and in comparison with other legacy European carriers, we are fortunate to benefit from France the largest inbound market in Europe with its 2 largest airports, the Afros Global Hub in the Wazee Shaldegro. And the 50% market share, Alfonso enjoys at the strategically located Valley airport. As well as Amsterdam Skippel, the best transit hub in Europe. We have a well diversified global network and a unique high end leisure demand, to and from Paris, which we expect to return earlier than the business segment. So despite the commendable efforts from Peter Renan, COVID 19 has triggered an unprecedented crisis for the group, and we are forced to quickly make difficult decisions. The group is ready to adapt its capacity and commercial approach as quickly as is necessary in order to cope with an uncertain demand ramp up. We are also working closely with our business partners on various related matters such as rapid detection tests for customers departing from Paris, both Hwassee and Ali, and Amsterdam Skippal. This will allow traffic recovery within the best possible sanitary conditions for our customers. Beyond these immediate and necessary measures, We are accelerating the transformation as presented during our Investor Day in November 2019, while simultaneously accelerating the most critical aspects of the plan. Our group and our airlines will exit this crisis in a much stronger position, ready to address the future challenges of our industry that lie ahead So I'll now pass it over to both Peter and to Anne to go into more details regarding the transformation plans. At KLM and Alfalfast. Thank you, Ben. I think it's me talking to the sequence of the slides, for the transformation plan of KLM. Is that correct? Yes, Peter. Can't hear you. Okay. Alright. Do it again. I hope you can hear me now. Okay. For the transformation plan of KLM, it's important to recognize that the business model itself with a strong hub in Amsterdam will continue to be the basis of our operation. 2 out of 3 customers are connecting in Amsterdam And we believe that the slow and gradual recovery out of this crisis will eventually be led by, by the hubs. In Europe. And clearly, the group is in a great position with the HFCDG in Amsterdam, to position well for that recovery. However, in order to make it valid and valuable again, we need to adjust ourselves, but we have submitted to the government and to the boards our, our restructuring plan with 5 very strong pillars where we adjust, 1st of all, we make the organization smaller, cheaper, more, agile, more sustainable. And at the end of the day, make sure that we're adapting ourselves to this new situation. With that, we have already, put forward a significant cost reduction plan. The first results of the cost reduction could already be seen in 2020, and they will continue to work for the next few years in order to have the 1st big step in 2021. Another EUR 750,000,000 of structural cost reductions being planned for 2021. In terms of staff cuts, we have already taken quite significant steps. And that means by the end of this year, we have a total reduction at KLM in the order of around 5000 jobs that's all being completed already and signed by, by collecting individual agreements by people leaving. That's in the range of 15% and even more recently, a new voluntary departure plan has been opened in order to prepare for a longer duration of lower flights and lower, lower production levels. Part of the cost savings are also by reduction in labor benefits that's working hand in hand with the conditions as put forward by the government for the loans, that cuts in labor conditions up to 20% for the highest paid groups. And that combination of reduction of labor costs, reduction of fleet, supplies and procurement costs, further steps in fuel efficiency and addressing all other costs is extremely important for our recovery trajectory. We're in the final stage of discussions with the government. We submitted our plans our restructuring plans on October 1st, and that should be finished in the next couple of days, really, in the discussions with the government. That is 40 KLM restructuring plan. I think I give the word to Omar. So on slide 22, you can see the transformation plan of, Air France. We have built end of November 2019 Transformer's Egyptian plan to increase the absence margin and bring it to the level of the competition by 2023. This plan has been accelerated and amplified to the COVID crisis context. If there is on 6 pillars, Ben has sold out as a restructuring of the domestic network that lost, 1,000,000 in 2019. With a strong decrease of the capacity of our regional subsidy, hop by about 50 bisons, hop will refocus on our hop of Ollie and Lille. With the growth of our low cost tool from Ollie on the domestic network and from region to region, to be able to compete say to to lose and to meet. So this plan is, is in progress, and we are implementing it even in the COVID crisis. The second part is a strong acquisition, of course, of all external spending. A real transformation of our support functions to be more agile with a decrease of 30% of those functions. A structural simplification of our operations and also resizing during the COVID crisis. And also, to lower our unit cost, it's key to modernize our fleet. And it allows also us to lower our our environmental footprint by 25% with each new generation aircraft coming. We are we have ongoing the the arrival of the 350 in an order of 38350 and also the arrival of the others to 20 that will happen next year in the winter. The 6 pillar consists of a recovery plan and commercial action plan on our offer. So next slide, 23. This transformation plan will bring 1,200,000,000 of structural benefits by 2022. It will allow us to decrease our staff by more than 8500 FT by 2022. That is about minus 16%. We expect, minus 11% by the 1st semester of 2021 that will bring around a €500,000,000 of savings. We've already finished the voluntary departure plans for cabin crew And we expect to launch because of the legal, delays in France, we will be able to launch the, voluntary departure plan for the ground as of beginning of 2021, when it will be validated by the Ministry of Label. Added to this FTE decrease, we have a reduction of salaries due to 2 effects. The first one is a partial activity. That has begun in March and that will continue throughout this crisis. And the second for our Croons, there is a, an important of the wages that is impacted, that is variable and impacted by the decrease of the flight hours. Maybe it's for 3 more comments The first one is that we pursue a positive social dialogue. And we see several agreements that has been signed this year, with the pilots of course, the removal of the historical constraints to allow Transat Transavia France to grow including on the domestic markets. With the pilots and the cabin crew, they have a negotiated and signed and it's done collected contract termination. With the ground staff, the social plan that we're calling for us, PDZ, ASO, that will be launched as of the validation has also been validated by the union. And just this week and therefore, there's very good news. We have signed with guiding to an agreement to reduce crew composition when the load factors are low and it will be very helpful during this crisis. This plan is also compliant with state aid conditions. That is to increase our competitiveness and to lower our environmental footprint, especially on the network with a decrease of 50 percent of our emissions in net value between 2019 2024. Including the closure of domestic routes when there is an alternative by train of less than 2 hours 30 minutes. So we closed our lead to border to yield and to not root. We are also currently negotiating agreements to implement what we call in France, is a French scheme long term partial activity for the 2 years to come. In Afrodic state, we are quickly adopting our capacity for the weeks and months to come, because of the new confinement in France. So we will really need to make an optimal use of this long term partial activity scheme provided by the French government. Okay. Yes, Jan. Thank you, Peter. So, operator, we can move now on to questions. And, because of the, the lockdown here in France, we have Peter Elpers, in Amsterdam, and we have a Faray Caje, Henley guy, and myself here at Deanna Valid. So we'll do our best to coordinate the, the Q and A session, depending on the, on what the specific question is. So back to you, operator. Thank you. Our first question comes from the line of Jarrod Castle from Union Bank of Switzerland. 3 as well, if I may. Firstly, can you just give an update in terms of, how the monthly cash burn is progressing? I guess, you know, all all this, September, October, and any ideas on how you see it progressing as it goes through the quarter. And that's operating. Secondly, just sticking with the balance sheet, can you give a little bit of color in terms of some of the conversations going around regards of potentially converting debt into equity or new equity issuance. And, you know, briefly, like, when do you think something like this needs to be done or could be done? And then just lastly, it seems like the drop through on revenues is around 20%. And, you know, you're still not at a steady stake run rate just given all the restructuring you're undertaking. Where do you see maybe the drop through rate going to on revenues, as we enter next year? On the cash burn, I will not give precise indication. I see that they have been, however, relatively clear in the comment with the war. Q4 EBIT compared to Q3, and it is a clear guide on the labs, with the fact that part of the good development of the working capital has been explained in the beginning of the crisis by our ability to postpone some payment to some suppliers and to initiate this type of measures. I also clearly negated during my presentation that the working capital development will be less positive in the next month and quarter compared to what we had in the, first, let's say, 6 months of the crisis. So it is a clear guidance, which is not negative and not positive, but clearly, the cash development of the cash domain. We have on a monthly basis. We'll, clearly, I think data rate during the next, the next 3 months at least. So I cannot give you a global indication, but I will be a bit less positive compared to what we have observed during the 6 1st months of the crisis. Concerning the recap then, Concerning the recap. Okay. I I am looking as you to the various publication of airlines, I will say, mainly in Europe. And you see that the equity, yeah, of all players are, of course, deteriorating. There is one element which is bit specific for Air France KLM, which is at the state end, which has been bought, to the 2 companies in May July, 2020 where only with 100% debt component. And when you see the situation to some of our colleagues, I think, for example, to SIS 2 Singapore lines to Lufthansa, they will there there there has been during the scheme add also, an equity component. So it is not a surprise to consider that, for Air France KLM one day. We also need to find a way to improve the equity, which has been not supported, let us say, by the pure debt component of the state scheme ads. Anyway, as I told you yesterday, the the when when I was speaking with some people at the board, the the the wisest is not to give too precise integration concerning the debt. But I will say that, clearly, we need this type of intervention and at the level of equity. And so on, there is values, not an infinity, but there will be a different ways to support the equity of a corporate. As you know, And we are still discussing. I did that with some partners or stakeholders as recently there is many ways or many tools which can be used to improve the equity or the quasi equity of a corporate, and we are working on that. Concerning the last point, I missed question was, how do we see revenue? For the, to the coming year. So we, we did see a positive buildup in the summer. We were pleasantly surprised with the return, of, demand, leisure demand. In particular in domestic France. It was more than we expected. And then the business traffic that we're hoping to see come back in the fall, obviously, not just without HAAS KLM, but with most other carriers or all other carriers did, did not materialize And so with the new lockdown in, in Frankfurt, we're making adjustments to the LCOS capacity plan for the next 6 weeks. But we do, we're cautiously optimistic that we will continue to see strong leisure demand in particular to, the French domestic market and the overseas, Utramele destinations from France, which are, point out for you to afford this house at Rainhill, very large markets, to and from Paris where prior were in the summer, we actually saw, again, demand that was, it was a little more than expected. On the KLM side, we've the strong cargo, demand that we've been experiencing and with the 4 full freighters, as well as the support we have from the NOW, the NOW employment, employment insurance scheme that we have in the Netherlands. We do expect to continue to take advantage of that and move considerable amounts of cargo through Q4. For next year 2021, I don't think we're ready today to give any guidance on capacity or revenue for 2021. So just on the last question, if I may, you know, obviously, the expectation is for, for an even bigger revenue fall, I guess. But the question was really around drop through rate, on that revenue or should we be thinking that the impact on profit, in terms of lost revenues and profit will be lower than 3Q given the restructuring that you're putting through, even if the absolute magnitude of those losses or greater? Yes, I will a bit with you. It's clear, for example, that, the departure of the, the, some people a company, something which is progressive. I told you with the presentation concerning Air France, for example, the first effect of for the ground people will be only seen in, in 2020 to 2021 and a bit further. There is some plans concerning the cost controls, the cost reductions, which are also ongoing negotiation. We are the supplier So we're considering the product or the type of service. We are asking to oversupplier. So I would say this is an ongoing process. And I will also be on, you'll find the considerations that the more we go, the more effect of these proceedings will be visible which means that the ratio loss of formula of EBITDA that I have indicated in the slide number 3. Will rather improve in the future than the contrary. Our next question comes from Roxandra Cardodosaire from Kepler Cheuvreux. Please go ahead. Morning. Two questions, please. First, you mentioned more refunds are likely how high do you estimate the total cash Please go to the reimbursed passengers. Second, please, Karen, I'm taking the responsibility driver of the group for this DSO tenants business models only in line on price capacity. Could you please discuss your expectation on trend for trusted pricing, both in the leisure and corporate segments over the next few years. And third, again, a strong part performance. Is that the patient in the center ad that it can take several years and the passenger traffic recovers the peak prices you believe airlines fight again for the smaller cargo activities and for both passenger airplanes to do cargo airplanes, which could increase cargo capacity in the market? And if you take idle capacity to set the account to decrease over recent years, do you see the opportunity to focus more I can take, I can take the 1, the first company to refund. We are given in the presentation. The first amount we have returned since the beginning of the crisis around 1.8 a significant amount. We have put in place some automatic tools to facilitate that we are north of the ticket for the passenger. We were pressuring it immediately on both, which we can totally, of course, consider as an option. I've also proposed that with a good if you keep the wheelchair, there is an interest for you to keep the wheelchair because there will be a reduction in security kit you will buy. So we try to have, I will say, a nice and open relation with the clients from finding the lombosmart of the replicate when the flight is inflowed. We work on course, because we have seen that in the past from time to time. That's the big amount of ticket to the Rambo in terms of logistic. It was not totally freed. But frankly, we consider that now the situation is clearly at a good level. And we continue to work with this period. Now it's clear that there is still a stock of a ticket of vouchers to be on board. Of course, we prefer the passenger are keeping about, that's why you have made this discount. If you keep the road share and you buy the ticket later. And we will continue to reinforce the flow of the ticket when it's requested by the passengers. Difficult to say exactly what it is about during the next 3 months. Clearly, further date of the deferred flight the current story, the beginning of the crisis, we have some tickets which have been installed 2 weeks ago. Finally, the flight is canceled. And Pomerisa will be less pressure to wear on both these SCCATs for the oldest that will be confirmed. The behavior of of the passengers are so difficult to make an estimate. To be honest, there will be no reason to see an acceleration of the reimbursement. We will forecast. We will also see stable flows stable flows as we get to be on board with a stable impact in terms of cash. If we can get Peter, to answer the second question, I was able to hear us on the specific KLM one. Thank you. I can hear you. No problem. Yes, we believe that the connecting hubs will really lead to recovery and the ability to have the small flows of flows, which just had a direct flight, but can no longer sustain direct flights with the demand which is down, will really have a need perhaps to have the passenger flow and show We do believe that especially the transatlantic hubs where the traffic will return once the situation is stabilized and business environment will be improving. We'll have the strong European CDG ramps to them and then we have some delta on the on the U. S. Side helping us to start recovering the traffic. The reintroduction of some of these smaller folks will take much longer simply because there's no connection. And in order to support that, we have really brought back not so much capacity, but we have brought back the network in terms of destinations throughout Europe. And I think in the Q3, looking at the European network, we were back in the range of 90% of the destinations with only 50% to 60% of the capacity show in the presentation of the clinic. So again, there, the less the ability of the network connections and the smaller flows will really help us through the recovery. Then having said that, it will take some time. We believe that our model and the strong hubs are really helpful in order to participate in the recovery taking place going forward. Thank you, Peter. And on the 3rd question regarding our views on cargo in the medium and long term, Right now, of course, the unique period in terms of cargo demand and cargo yields, we do feel we are very well positioned the medium, long term, should cargoes be higher shipping and accelerate to what do I prove to you? We do have 59 777300 VRs that will be in the fleet by early next year. We do, of course, have 6 full freighter craft difficult to pivot, medium term what the demand will be, but what we can say, we're very pleased with the flexibility that we have to pivot and we're well positioned to take advantage of potential higher yields. Thank you. Good morning. If I can ask 3 quick ones, please. The first one, as usual as it is, I'd like to understand your base case for summer 2021 capacity planning at this point, even a reference point, but I'm not sure you'll continue to sense check would be very helpful to understand. And second question. Airport, I already mentioned briefly that they're aiming for a tariff increase for next year. I assume hope for the opposite. I'm just interested in watching your expectations about how that negotiation plays out are And then the 3rd question, obviously, the equity question was asked earlier by Jard. To one of your competitors makes an incentive from NAE key parts of their potential equity recovery story. I'm just interested in how you think about your own maintenance business, particularly, usually quite a valuable asset. Is that potentially part of your recapitalization plan, or are you firmly against anybody else owning that minority stake in that business given its relevance to the grid? I also explained that concerning this recastity. I will also make comparison compared to all expectations at the beginning of the crisis. When we speak to this with the 2 teams, I will say that compared to the plan they had in March April when we have made some scenarios concerning the portable recovery. We will not only are from seminary wholesale or a lot of all peers that the industry was considering the possible through recovery by the end of the year 2020. And looking for the time being to the first numbers coming from the period preparation, which is admitted by the review management teams of, of the group is that they consider that at least since the COVID period is postponed up to 6 months. Which means that when we build scenario in terms of revenue and capacity for the year 2021, Genario, then I also use what they plan to have in December 2019. The trick is developed in July 2021. So it is something like the postpone month of 6 months complaining, Kim, we had in mind that before the last one or 2 months. So clearly, it was put down by 6 months of the recovery scheme we had in mind, as the at the beginning of the crisis. So in terms of capacity, of course, we have some, some number that I will say that We will clearly keep the agility and the capability to adjust or down or, in case of fibrillation of the it. So I would not give you at that stage the precise numbers. We'll put into the bidet. We'll do that when we will discuss the Q4. We're looking in a fab 2021. And then, of course, we will give you the capacity for year 20 Yes, maybe I'm the question of, airport charges and the risk and demand of the hydrophobic as we told you, we are fighting against all cost increase and we are decreasing a lot of all our external charges. We are by the way working the profitability to identify all the action plans to commonly find some cost increase. Of course, it's difficult for us to ending cost increase. So we voted against it, and we asked at least to treat it. It is a decision of the regular Thank you. We will now move to our next question from James Hollins from Exane BNP Paribas. Please go ahead. Hi. Good morning. I have 2 for me, please. First of all, you talked about restructuring. I'm just going to flag here some headlines you've seen from the KLM. Rather than budgeting and rejecting the churn and restructuring plan. And with that in mind, obviously, the economy would be good. We also just maybe want us to really call the key hurdles you're seeing to restructuring whether it's any particular union resistance. I know you've done a good job on in the newsroom side is only where where we're still specifically on the key, blockages that may be coming. The second one is on travel corridors or breaches already on the call. That's something where you were on, airport testing, whether you try the, pre flight test to an anterior route, and whichever your regulator is on on potential for any bilateral agreement. I assume that everything's on hold. Junior French looked at an update on France and another intravenous route. Thank you. She'll be Peter can answer the first question and then we can have both Peter and then answer your second question. Yes. Before jumping immediately to the headlines this morning, there's new headlines every morning actually. Looking at what we have done already, basically a lot has been achieved already and the reduction of 15% of the staff has been done already. The adjustments of the organization has been done already, and the 1st stage of the cost reductions have been agreed with the unions up to earlyend2022. The discussions with the government are now whether the duration of the union agreements until 22 is long enough or whether it should be longer already now. And clearly, it's an important element, but it doesn't take away any of the efforts of the achievements we have done already now, which will be also implemented in 2021. We know that the restructuring and the adjustments of the organization It's not going to be done overnight. It will take some time. I think as we have proved and demonstrated over the last few years, companies with significant history, sort of like ALM, changing that and making restructuring is taking some time. Again, if I look to all the steps we've taken over the past 6 months and the agreements were happening for 2021, think we can be confident on the trajectory we're in. Having said that, we still need to finalize the debate with the government and get there endorsement of the full plan where indeed we're still having some debates on the sort of remaining parts of labor concessions for years off 2022. We'll continue to do that in the next few days. Thank you. And now we'll turn the next question comes from Hi, good morning. I just wondered if you could give us a sense of how much within your working capital is accounted for by deferrals of taxes and deferred and deferred supply payments, and then that would roll off And also secondly, to what extent are the restructuring costs of 565 expense in the third quarter yet to be paid let us say, but they're listing concerning the voluntary departure plan. In KLM, to be paid before the end of the year mainly, I would say, and for our front, the last part of that was the largest part has to be paid at the 1st part of 2021. Concerning, concerning the the postponed note of some, of some payment there. I will further give you the order of magnitude concerning the tax and the social charge for Air France. But I suppose that for KLM, you can do that, unfortunately. For Air France, we are avoided in 2027,700,000,000 of fixed pump sales. And we have to be paid over the next 2 years which is 1, 2,021,022,022,022,022. So let us say that it is not insignificant, insignificant amount, but for the last part of that It will be a spread over the next 2 years and I'm not so sure that Peter are still in 4, but in the conversation we have with Eric Sline, as a CFO, if you can remember, I would say it is a the same type of order of magnitude. Concerning the postpone amount of the payment to suppliers. I would say that generally speaking, it is a bit narrow. And we have a void on payment for duration of 6 months, Mariusa maximum. For example, with Vester, it was more 3 to 5 months of postpone month of the bill. So I would say that we are already paid and we paid in Q4, the part of the bills, which has been postponed, during the period of, beginning of the crop prices. This is what I would say concerning the 4th month and the cash impact of the restructuring. Confirming the restructuring for fleet, which says that normally it is longer, because, first, there is part of these, part of these restructuring costs, which are not cash. It can be just, it can be just writing off some assets. And part of it also is an accelerated the position. So there is not immediate cash cash impact, but there is also, of course, cash impact forces or securing, but I would say more spread over longer longer period. I think also that we miss a question concerning sales of assets in mister Nance or in cargo then. Of course, it can be part of the plan. To be counted for the time being. There is no precise project in this domain. It doesn't mean that we are not to consider it officially the crisis was deeper and longer, but for the time being, we have not yet finalize or even studied such a project in terms of selling the type of activity. Sorry, on the supplier payments, could you just give an impression of the quantum of outstanding supplier payments as well as this third quarter? Thank you. We'll now take our next question. My assumption is not very big. So I think that this is more or less the same for for Karen. I have only that, but, just given to me by stealing the script of Air France. I don't know if you have seen this in the call, Just to keep the indication coming to our front end report that it is the same for it should be true. And we will now take our next question from Andrew Lundberg from HSBC. Please go ahead. Oh, hi there. Can I ask you to talk a little bit about why you're flying so much more than your Yes? I'm not in a little land around networking cargo, but, I mean, the gap is really quite large relative to your peers. So can you talk about why you're flying so much more? And then just coming back to a question that I think James are, but I don't think it got addressed. Know, about the efforts to, make some progress with prefab testing. But really particular, what I I'd be interested in learning is in fact, can you guys try and encourage, multinational agreements? How can we you lobby be in you or more broad international agreements? Because obviously, genelectrical decisions by country state and the market. Okay, thank you, Andrew, so in terms of the amount of flying that, if Gail and Alfons are doing relative to the other major carriers, in Europe, there are, of course, these 2 employee based board programs that are in place, the activity in Alcoa in France on the NLW program in the Netherlands, which provide us with a relatively large EURO amount of support. So we have that as number 1, number 2 on the alpha side. As I said earlier, the French domestic market is rather than bars, which is unique relative to other global peers And then, of course, the very large volume of customers that fly to and from the managed overseas territories. So that's a reason on that side. On the KLM side, the KLM side, the cargo network and the amount card whether we've been able to, to secure more than 2 prior Colby numbers is also significantly helped us. But I think the most important I'm not sure the most important thing that we have in place here is that no flight, none of our flights operate without being cash flow positive, but it's what we have in place throughout the group, and that there is no excess capacity that is not generating out any cash. What I could ask is, if Peter and I have more to just elaborate a little bit further on how the how do you have the decisions are made, what particularly they've achieved over the last couple of months and how, how do you, how, why we are confident including the amounts of capacity we have there for the rest of the year based on the experience we've had in in the Q3. And just an example, 1st month in October, the capacity we had in place was actually performing exactly as we as we had expected. So maybe, start off with Peter and then I'll connect a few comments on. Sure. Thank you, Ben. Let me just echo it on the line, towards both Ben and Fering, we have quickly reestablished our European network in, during the summer months in, in, basically, in July, And with that, we are having very small flows, but providing at least some feet to the mobile network we're having that in combination with the very significant cargo amounts we're having, and the fact that the labor support program sort of pushing down the level to where a reliable costs are being covered, we have been able to operate a relatively as compared to some of our peers, relatively strong network. Again, here, the fact that our network is pretty much spread across the globe, much less concentrated on particular place is really helping us as well. So we have the combination of these factors and just to underline what Ben said, on an individual flight basis, we are having people reviewing every week, all the flights are being operated and none of them is operating on a level below flight contribution, so making up more than an only variety will cost and this combination of European networks, small flows, cargo, label support program and the geographical widespread is really helping us to have that network in place. And going forward with many of the competitors taking out low vol capacity, we probably see a continuation of a trend whereby some of these smaller flows still have to be accommodated cargo capacity will still be needed And at least for the next few months, we still have the same labor support program in place. On the airframe side, if I look at the figures of October, we were able to to have a 40% activity compared to last year, mainly pushed by domestic This was above 50%, hub was below 30%. And now who was at 40%, quite dynamic on the French and pillars, French overseas, also some destinations in Africa where we have a lot of media expense and the real piece of traffic. It was quite dynamic since the summer. And if I look at the other regions, of course, it's a lot weaker on those that are known. Asia, but, we still, are capable of having some moves that are cash positive. And again, I feel immensely we are reviewing every day the margin contribution in terms of cash of each flight and each flight has to be positive. Otherwise, we complete in anticipation. So on those regions, North Atlantic and Asia, we've had a strong benefit of the target that can be up to 48% of the revenue on those routes. On essence, think it is because the core of our fleet is 77300, with a huge capacity for Campbell, So that helps a lot. That is the main reason for us to still fly on those destination. And 350 are also aircrafts that are very useful for Pago. And then on your question regarding lobbying for, for corridors and safe corridors between certain big markets and how we can do this in a more effective way. We are working with IATA as many major carriers are in trying to block it. There is jurisdictions and governments around the world to get test some of these corridors in place as quickly as possible. We do have support, alignment from the Dutch state and the French state on that same regard. And then specifically at, at the 2 major international carriers, skip it all and the lessee that we have bases in, and we have a strong lobby going on there. 83, their lines for Europe, is also lobbying on behalf of all these long haul carriers in Europe. And we have had some success with A3 recently and that was with a common approach to lobbying Brussels to put the slot moratorium in place through to the middle of next year, which helped us reduce activity significantly at the slot constrained airport. So we operate from And, of course, has helped us ensure that we maintain these key assets at key airports So we do have some good experience with Avery. We're hoping that could help us, get a larger and wider force, take care of what I say is could pre align it with that state, the French state, and of course, the other parties around the world in particular delta. Thanks. Our next question from Eric Wilbank from ABN. ABN AMRO. Please go ahead. Hi. Good morning, everyone. I had a question on early fleet retirements at KLM specifically. Structural capacity reduction at KLM on early retirement screens relatively low in the context of the 15% headcount reduction of KLM. And also for us to be announced early fleet retirements at Air France. Also because this would result in a capacity difference between Air France and KLM becoming materially smaller going forward. I think at KLM, the capacity decline from the 7.7 return is missing digit area. What is the main reason to be reflected on early flight returns at Salem specifically? See what I can say. I start. I mean, keeping it in there concerning after is, and we do have a medium, long term plan to simplify the freights in both both KLM and in the house at KLM, of course, the 747s have now been fully exit. We are moving toward simplified 77, 777,000,000 fleet. However, we do have a dual cockpit leading in place, which will make a put in place to move the fish and long haul fleet of any airline in Europe, any of the major carriers in Europe, that KLM that cost similar exercise. Obviously, many more aircraft types. So obviously for the A380s are now out, the A340s are out. And there was common pilot rating now on the A330s and the A350s and then of course a large fleet of 777s and a very small fleet of 787s, the removal of aircraft from either one of the carriers has not been, our strategy today. We have halted all, overhauls and engine work that is all acquired, which is with the move and a significant amount of CapEx, which you'll have seen in the two newspapers that have been released publicly this morning. And so the planes that are still operating, we're not taking the position as of today, to ground mines that, they still have life in them. However, the utilization of all of these aircraft is significantly down So in terms of pulling a fleet type out, the 1 aircraft type at KLM, which we will opportunity to consider. Of course, you know, that's 8:30. We do have some flexibility there. And on the off cost side, the the simplest it can get up until now, but there's a Peter and I want to go into a little bit more detail on the specific fleet, runs at Eagle Airline power up from day to day and where we see us going in the short topic will be helpful to answer your question. It's a movie that can start. Yes. Thank you, Ben. Though the observation is right at the number of 747s retired, is it relatively limited number, yet it was important to do so. And by doing so, we could phase out the entire free type and any pilots, retrain, dental, and so forth. I think the difference here really for, the next step would be the 330s we still have 13 of them in operation. If we were to take out the complete fleet of 13, the capacity drop would be very significant. 1, and 2, we would like and affect any flexibility at this point in time to anticipate any return of traffic since there's a very significant difference at KLM as compared to other carriers including Air France, the actual fleet orders are very limited. We still have a handful of white bodies on order going forward and not very, very more. So every fleet, which is going out, eventually would mean a structural reduction of capacity And that's why we're taking a bit more prudent approach. First of all, there's no immediate cost saving related to it. There was a cost saving with the 7 4s. There's no immediate cost saving. With the, with the 330s, which are a mix of ownership and uses, and we would lack all the flexibility. Of course, going forward, we will review how things are going and we keep the flexibility to take any decisions once it's needed on the 3 30s. The 7800s are the core in combination of the triples for the operation and the triple sensing and just to apples and remark on the triple 300s, the cargo capacity. So the actual operation, the 33200s are the sort of released operated number of lights today. On FMC side, I think mainly since we have said, we have a detailed 380, the 330, sorry, for the moment, it's not fleet, 7773.50 that are flying on the long haul side. We will update the 777200 that are leased, and then I'll come to an end. It's part of the renewal. There is no major cost saving in deciding to accept earlier, on the aircraft. What we try to do to optimize the partial activity scheme and the subsidy of the French government on the partial electricity scheme is to have a longer grounding of the aircraft So we will adjust the capacity, as we said, within our consignment and really optimize the top of the fleet that is flying to save to the maximum maintenance cost. That is the urgent decision to make. Very helpful. Thank you. The queue. Deliver good one and the first we need to do simple for your last questions. Thank you, everyone, for participating in this call. And we look forward to speaking with you at the next call, hopefully, under a better circumstances. Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect.