Good morning, and welcome to the Air France-KLM Analyst Presentation. Today's conference is being recorded. At this time, I turn the conference over to Mr. Ben Smith, CEO, and Steven Zaat, CFO. Please go ahead.
Okay, thank you, Operator. Good morning, everyone. Today is a very exciting day for Air France-KLM. We closed on a deal last night to increase our financial position in SAS, Scandinavian Airlines, from 19% to 60%, with an intention to get regulatory approval from the European Commission toward the end of 2026. A few figures on SAS: revenues in 2024, EUR 4.1 billion, 130 destinations, which quite a few of them are new to our group, 130 aircraft, 12 of which are long-haul, over 25 million passengers, 10,500 employees, and 8 million members of the loyalty program, EuroBonus, which is really a great addition to our already strong company base. Consistent fleet with ourselves. They've got Airbus A350s, and they do have new A330s as well, A320 family, as well as the Embraer 195 with a recent order of 195-E2s.
We do have experience with the Bombardier CRJ and ATR 72. We have that experience in the past. The network is quite extensive, an extensive network within Scandinavia, with Denmark, Sweden, and Norway, and a European network from all three of those countries, Oslo, Stockholm, and Copenhagen being the main gateway points. There is a long-haul, a relatively small long-haul network, considering the size of the market in Scandinavia, to 10 destinations in the United States, as well as three in Asia. This is a great opportunity for SAS with the power of our sales forces around the world, our revenue management capabilities, as well as with our partners, in particular, Delta Air Lines across the Atlantic. We're hoping that that's an opportunity to expand the SAS long-haul network as that concentration centers around Copenhagen.
This will be our third hub in Europe, and we're expecting significant synergies and to strengthen our position in Europe. Steven will take over and talk about a few of the financial details.
Yes. Good morning, everybody. [Foreign language]. [Foreign language]. [Foreign language] . I tried it. [Foreign language] . If we go to page eight, I think you see actually what is the contemplated transaction and what are the key terms. In the current, as Ben already stated, we have 19.9% shareholding in SAS. We will buy the shares of Castle Lake. They have 32% and of Lint Invest of 8.6%. We will move up from 19.9 to 60.5%. Then we are together with the Danish state in SAS, and we still have 13% which are shareholders which are actually creditors from the Chapter 11. We will see what we will do with them after we have the majority. If you see on the bottom at the left, you see that the original transaction, we were at 20% in August last year.
We had a two-year standstill, so we would have executed this transaction which we talked today in 2026 to start with it. In 2026, we would apply for the EU regulations, and then it would take at least till 2028. What we are doing now is that we are speeding up. We have come to an agreement with Lint and with Castle Lake and with the Danish state and that we actually start now the process to the EU and that we expect in the second half year of 2026 to get the approval from the EU and that we can go ahead with this, let's say, majority share for us. The deal is in such a way constructed as you, as analysts, very well know. It's based on the EBITDA and on the net debt, and there is a kind of market multiple.
Actually, it is exactly the same, let's say, what we are going to pay for it, what is, let's say, happening to our own share price. For the financing, we will finance it from our own cash, or we will use a plain vanilla bond. We have ample room actually for this, for it, but it will be a non-dilutive financing, and it will have no impact on our strategy to reduce the hybrid debt in our capital. If we then go to page nine, because the question is, of course, why do you speed up? First, we see that the company is very well driven. They have an excellent operational performance. They even had the best one in the world, but also their financial performance is well ahead of the plan.
They are reaching now an EBIT margin, which is, let's say, in line with our own EBIT margin and is even above, let's say, the EBIT target which we have for the year 2026-2028, 8%. We do not want to wait anymore to see the financial performance improving. We want to speed up this process to benefit, first of all, at our side for the synergies for Air France-KLM, but above all, also for the synergies for SAS, because they will really, really benefit to be part of one group for the future. If we are talking about synergies, let's go to page 10 and have a discussion on what you see, a big list of synergies, and I think it is not even, let's say, complete, because just yesterday evening, I thought about two, three other synergies we do not even mention.
Let's start with the loyalty already mentioned by Ben. EuroBonus, a very strong loyalty program, more than 8 million members, let's say, that we will add to our 29 million members in Flying Blue. We have, let's say, together 37 million members. For sure, there are some people who have already a Flying Blue and a EuroBonus membership. Let's say we will be at least above the 35 million members in this loyalty program. SAS has more than 50% of the revenues coming from these members, very high-valued, very rich people which can spend a lot on tickets. Of course, we can use this to further drive up our commercial partnerships on loyalty, as we disclose now to you, on which we are making quite some money.
Last but not least, of course, the intention is also to look how we can build one currency to be used among the loyalty programs. On the second part, you see optimizing our commercial cooperation and co-share agreements. Currently, we already have EUR 120 million in our revenues which are enabled by SAS. There are directly sold tickets from them on our network of EUR 71 million, and there is an additional EUR 49 million which is just connecting. It is SAS flying to our hubs in Amsterdam, Paris, and they will take a next flight, mostly long-haul, for EUR 49 million. We see very promising results on this agreement and also a big appetite in Scandinavia to fly on our brands in our group. Last but not least, I think the JV is key for them.
We will build further out our North Atlantic Blue Skies with Virgin Atlantic and Delta. As Ben already said, we will go from a double hub system to a triple hub system adding Copenhagen to it. I can walk you through all these usual suspects of synergies which we have seen by creating our group and which you have seen also at our, let's say, our peers. There is a lot of synergies to gain if you are together in one group. One, for instance, to highlight is, let's say, from my own department, we can add, for instance, the hedge strategy. SAS is currently not hedged on fuel, and we can refinance because they have some expensive financing currently running where we can find a lot of synergies.
I don't have to tell you, we can drive up the synergies in this group by adding this entity to us. Driving the corporate synergies, a good example is our financial shared service centers which we have, whereby combining these activities, we can create a lot of synergies in the group. If we then go to the next page, you see that it will have, let's say, this transaction is perfectly aligned with our ambition. They even have a higher ambition than what we set for ourselves with the above 8%. Of course, the improvement of more than $1 billion will be much higher because we will get, let's say, additional EBIT from SAS. We will still be significant positive and adjusted operating free cash flow.
Of course, it has a positive impact on the unit cost, so it will strengthen further our ambition to reduce unit cost in this group. Last but not least, there is almost no impact on our leverage. We stick to the 1.5x -2x on net debt EBITDA, and we keep our investment grade in terms from our credit rating agents. That is all from my side. Maybe, Ben, you want to take the conclusion, and then we are open for all your questions.
Okay, thanks. Thanks, Steven. I'll just maybe reiterate, summarize what's really impressive and part of the reason we're comfortable going a little faster than originally planned in taking the authority stake is the management team run by Anko van der Werff at SAS has performed an outstanding job over the last year or two, especially on the operational front and in the financial transformation of the company. That's been extremely reassuring for us. As Steven mentioned, the on-time performance, best in Europe, that the business plan has been either on, it's been performing as planned or ahead. Fully in line with our medium-term financial outlook, and we're really excited and confident that this will be a super net positive for our group. Available now to take any questions that you might have.
Thank you very much, sir. Ladies and gentlemen, if you'd like to ask an audio question, please press star one on your Tapmote keypad. Please also ensure that your mute function is not activated in order to let you still reach our equipment. So once again, please press star one. Our first question this morning will be coming from Jarrod Castle of UBS. Please go ahead. Your line is open.
Thank you and morning, everyone. Just a couple of questions, three if I can. One, what has the Danish government said about their 26% stake? I take it they're going to remain shareholders indefinitely, but if you could clarify. Two, Ben, Steven, have you spoken to any of the unions at KLM or Air France about the transaction? I'm just thinking you're going from a dual hub to a three-hub situation, so if they are comfortable with that. And then lastly, and I'm not sure you can say much further, but have you tried to quantify the synergies? I mean, historically, I guess airline mergers anywhere from 3-5% of revenues. Is that a decent enough range or historic range to be thinking about? Thanks.
Okay, hi, Jarrod. Danish state, I mean, they've been a major part of us moving forward on this. Strong, strong partners and I think alignment around the opportunity. I don't know if you've been following the latest approach to aviation in Denmark, which is quite different from many other jurisdictions in Europe. They see the benefit and the requirement of having a well-connected region. To make it interesting for airlines to expand, they have reduced, if not eliminated, all restrictions on takeoffs and landings at their main runway. They bought the airport to ensure that all capital expenditures are aligned with the hub airports or hub airlines' requirements, and they've either maintained or reduced all airline taxes that are currently in place, which is a strong endorsement for our business model.
We have been very clear, and they have been giving us all their feedback on what they feel is needed to make the various regions in Scandinavia much more attractive to investors and to visitors. We are aligned there on their intention to stay how long. I think that is a question for them, but definitely for the short term, they will definitely be involved. That is the plan. Discussions with the Air France and KLM unions, obviously on the ground staff, there is no impact. Our clear message to the union is we view this as an opportunity to expand SAS's footprint, and the target markets are obviously not to cannibalize our traffic at Amsterdam or at Paris, but to go after our competitors, their traffic with the stronger position that we will now have—sales, revenue management, loyalty, etc. They totally get it I think it's actually they see it as a net plus that will enhance and better protect their job, so we don't see that being an issue whatsoever.
Hi, Jarrod. Good morning. Yes, yes, for sure, we quantified the synergies. We did a very deep due diligence on SAS, but we are actually almost very much surprised by the synergies which we already got in after six months. The EUR 120 million revenues within six months, so it is not even a full year figure, surprised us all. We really see a big synergy potential. We did not want to put that here in the presentation, but of course, you can imagine that it is at least a three-number million figure. That is only on us. There is also SAS synergy. There is a lot of ample room of synergies to create between us at this moment. The figure to mention is at this moment too soon to tell because we cannot go deeply in all the SAS discussions to create the synergies because we are still competitors.
Right. Thank you very much.
Thank you much, sir. Our next question is coming from James Holland of BNP Paribas. Please go ahead.
Thanks very much. Three for me, please. I was just wondering, obviously, you know the regulators better than we do. Imagine it would be good to know exactly what the regulator is saying. I assume you've had pretty good conversations. Secondly, following on from Jarrod's question, wondering what the level of union reaction might be in SAS itself. I think you were alluding to KLM and Air France, so SAS union would be good. And then just maybe remind us if there's any structure in place or options on going to full 100%, which I suppose follows on from the Danish state question. And if that's possible and if on what timeline? Thank you.
Hi, James. Let me start. On the regulatory, we did not discuss yet with the EU. We are now going to apply for it. We were fully, let's say, in a minority share position, so we could not do a lot on that side. We will now apply for this process, and it will start from today. There are no options on the Danish state. If you look at what was the original setup, we actually did not change any conditions with the Danish state. It is exactly as the plan we envisioned that they will stay as a shareholder in the capital and that we will, let's say, drive the rest. We drive the business, and they will have a strategic share as the state. We did not change anything on the conditions between us and the Danish state, and there is no option to buy the shares.
Hi, James. On the SAS union reaction, we have not been, Air France-KLM management has not been in direct contact with the SAS unions. From what we understand from SAS management, the employees and the unions at SAS view this transaction in a very positive way, that this opens up opportunities, that they know that we are looking to grow SAS and that there is strong support and respect for Air France-KLM as a long-term player. Nothing as of yet could be viewed as negative or concerning to us from a labor perspective. They view it as a security or a greater security for their future going into bankruptcy, which was obviously quite concerning for them in the past.
Thank you.
Yeah, I think that that answers the question for James. We'll now move to Jamie Rowbotham of Deutsche Bank. Please go ahead.
Morning, gentlemen. I was just going to come back, if you do not mind, on the price that you will potentially pay. You paid, I think, $150 million for 20%. Should we assume roughly another $300 million for another 40%, or could it be significantly more given the success of the tie-up so far and given this will give you control? Maybe just following on, I think, Steven, you were trying to give us some clues there talking about current EBITDA multiple. Could you just remind us roughly of the EBITDA of SAS and, importantly, tell us how much net debt the business has, please? Thanks.
Hi, Jamie. I will take both questions. No, let's say the original price has nothing to do with the price which we are going to pay. As I already explained, it is based on the EBITDA, based on the market multiple. There is no premium in for the fact that we get the majority of the shares. We deduct, as you all do, on your day-to-day job, the net debt. It is exactly that formula. It is based on the market. You know that the multiples in our industry are not fantastic, and it includes also our multiple. That is the value. I cannot disclose the EBITDA margin of SAS because I am just a minority shareholder. Of course, our clean teams did a due diligence, but I cannot disclose that. I can tell you it is close to ours.
Net debt?
The net debt, I'm not going to disclose here, but they come out of a restructuring, as you know. You know their numbers. It all depends at the end of how much cash are they going to generate in the coming period.
Sure. Okay. Thanks a lot, Steven.
Thank you very much for your question, sir. We will now move to Andrew Lobbenberg of Barclays. Please go ahead.
Oh, hi there, and congratulations. This is exciting news. Can I just try a little bit more following on from where Jamie was? In terms of the EBITDA that would go into the calculation for the price, can you tell us what year that would be? Would that be 2026? Would that be an average of 2025, 2026, or some kind of an average looking to the future as well? And how big are you in terms of timing of getting them into EBITDA? Thanks.
Andrew, you had a very bad line. The last question, can you repeat that one?
Of course. Sorry. When do you think you'll be able to get SAS into the joint venture on the North Atlantic?
Okay. Okay. Thanks. That's a very good question. Let's first start the EBITDA. It's the EBITDA of the year that we close. So it will be the average of, let's say, the year that we close. So let's say, as we are aiming to do it in the second half of 2026, it will be mainly the 2026 number. On the JV, yeah, of course, we need to—we will apply for the JV when we have, let's say, sight on the merger control. It all depends on the, let's say, the fastness of the DOT in the U.S. As you know, that is difficult to control.
We went to the DOT with our Blue Skies Agreement in the past, and it took, I think, by heart, something like one and a half years at that moment. We have good discussions with Delta. We have fully a joint vision to integrate them in the JV. We are very well prepared, and we are already working together, of course, as you know, with co-chairs, also with Delta. We have it all in place, and we will go as fast as we can. We have the limitation that I cannot give any guidance on timing of the DOT in the U.S.
Thanks.
Thank you very much, sir. You're welcome. We'll now move to Antoine Madry of Bernstein. Please go ahead.
Hi, good morning. I was just wondering, you point to cash prediction. So what specifically are the largest areas where SAS is not reaching its potential, and how will you close the gap with peers? Thank you.
Quite a few areas. First off is definitely long-haul. For the size of the market and the yields coming out of that market, 12 long-haul airplanes is quite small. Just to give you an order of magnitude, we've got 65 long-haul airplanes based in Amsterdam, and we have over 120 based at CDG in Paris. If you look at the market sizes, in particular, the Netherlands versus Sweden and Denmark, and to a little bit of extent, Norway, you can see that there's a disproportionate amount of the traffic that's being flown by other airlines. If you look at the geographical position of Copenhagen, it is very attractive for connecting passengers between Asia and the United States or North America. You can actually save some time, which obviously makes it cheaper for us to operate and is a very interesting customer promise. Long-haul, very interesting.
Also, what we like is that the Danish state, their policy towards aviation is quite favorable. They have recently made adjustments to the main runway there so that there are no restrictions around movements or time-of-day curfews. The Danish state has bought the terminal or the airport, and the strategy of the airport and the capital expenditure plan is aligned with any hub airline that wants to base itself there. The airport will be well designed for connections, whereas today it is not 100% optimal, so that will make the airport more competitive. SAS has not benefited from being part of any joint venture. The Star Alliance A++ joint venture between United, Air Canada, and Lufthansa, SAS has not been part of that. They have not benefited from US point of sale strength with United, as well as the additional help by Lufthansa Group in Europe.
They've been at a big disadvantage in the biggest, most profitable market. This, again, is another big opportunity for us now that we'll be eventually integrating them into our group. As Steven mentioned, the base of local traffic is producing very, very high yields. When you look at that region, Belgium, Netherlands, and then Scandinavia, this is a very big difference to what the Belgian market and the Dutch market are able to produce on a local basis. Those are some of the big highlights that we're looking at. I would say it reduces the unknowns. We're not having to go create new traffic. There's opportunities to regain share that we or that SAS had lost over the last few years because it didn't have the necessary tools in terms of sales strength outside of Copenhagen, outside of Scandinavia. Also the product, SAS has just introduced a true Business Class product in Europe where it did not have that before, and that is proving to be successful for them.
Antoine, does that answer your question, sir?
Yeah. No, thank you very much. Yeah, I was more wondering about the unit cost, the cash reduction, and whereas SAS can close the gap, whereas not reaching its potential. Very interesting on the unit revenue. Thank you.
Yeah, on the unit cost side, coming out of bankruptcy and the transformation they've done to date, I mean, unit cost improvement versus what they had before going into bankruptcy and before COVID, when it was part of the business plan, obviously, is to perform better, and they've been performing at or better than business plan. So we're quite happy with the unit cost development.
Of course, we see even deeper opportunities. If you go to one sales organization, of course, that saves automatically costs. If you go to one IT system, you save tremendous costs. If you're going to discuss with the distribution channels, you save tremendous costs. If you move all your operational accounting to one place, you save tremendous costs. We have seen that in all these airline groups where we drive a lot of cost savings by just doing things all together at one place.
Thank you.
Thank you very much, sir. Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star one at this time. We'll now go back to Jarrod Castle of UBS with a follow-up question.
Thank you. Last question from me, I promise. Just thinking about TAP or any other airline, if it came up for sale, if you would consider it now or does three hubs, is that enough, I guess, is the question. Thanks.
Yeah, thanks, Jarrod. No, this has no impact on what may take place in other markets. As we stated, the Iberian Peninsula is interesting for us. The geographical location and access that TAP provides to Latin America, in particular, Brazil, is of interest if the conditions are interesting for us. Because, as you know, with the multiple changes of government in Portugal, the process has not restarted, the sale process of TAP. What we understand is going to restart rather quickly. When we better understand what the Portuguese state is looking for in terms of ownership stake and commitments, we'll make a decision whether we participate in that sale.
Right. Thanks.
Thank you. What's your question, sir? Ladies and gentlemen, as a final reminder, if you have any questions, please press star one at this time. We do not appear to have any further questions. I turn the call back over to Mr. Ben Smith for any additional or closing remarks. Thank you.
Okay. Thanks to all of you who are on the call today. I appreciate your questions, and have a great day.
Thank you very much. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day and goodbye.