KLM ignores the terms of state aid, the cabinet’s patience ran out

KLM ignores the terms of state aid, the cabinet's patience ran out

It relates to 2019 rewards, the year before the corona crisis. By itself, these amounts will still have to be paid into the head of the company, but not as long as KLM is still financially supported by the state. This is still the case (see box at the bottom of the article).

However, the Supervisory Board gave its approval at the end of last year to pay the bonuses. As a pretext, the supervisory board used a court ruling in a case brought by departing CEO Peter Elbers.

He demanded severance pay and bonuses from the years before Corona, and he was right. Elbers and the rest of the Board of Directors and senior management then received their rewards for 2019.

Put the terms aside

“Violation of the Terms of Support”, State Agent Jeroen Kramers concludes. On behalf of the state, it checks whether the company is complying with the agreements that come with a total support of 6.8 billion euros.

The government agent has discovered that this is not the only condition that the company “disqualifies”. In exchange for state aid, KLM must cut costs in order to become financially healthy.

One of the conditions for achieving this is the waiver of wages by employees. This happened in 2020 and 2021. But since March of last year, KLM has already given pilot pay raises without consulting the state or state agent.

Including sky high inflation

As a result, pilots earn about 15 percent more than contributing to the austerity target, according to the state attorney. And it even included high inflation as a mitigating circumstance, at KLM’s special request.

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High wages among cabin crew and ground crew have also increased wages so much in the past year that they are earning 10 percent more than the government promised in return for the help.

Wages costs rose faster than average

The state solicitor said wage increases in 2022 have completely wiped out savings in wage costs in previous years. Compared to 2019, KLM wage costs rose faster than the average in the Netherlands.

Only the salaries of the ground and cabin crew in the lower paying jobs are in line with the promises, and with those at the helm of the company. That’s what worries me, says the state agent. Because if KLM does not make enough cuts, it will take longer to achieve the goals in the recovery plan. For this plan to work, profits must be made again.

This is necessary to be able to invest in cleaner aircraft and new information technology. Right now, KLM isn’t saving enough, in part because employees earn too much.

This year, the company is 250 million euros behind what it must provide under government aid agreements. This amount will increase further in the coming years, to 475 million euros annually from 2025.

Compensation warning

And the state agent warns that it could get worse. For example, KLM has promised employees that employees will receive compensation for loss of salary when the subsidy package ends. If that happens, even the savings from 2019 and 2020 will be partially “reversed.”

KLM says in a letter to the Finance Ministry that it has no choice but to offer “competitive working conditions”, due to “extremely high inflation and a tight labor market”. This is the reason for KLM He no longer adheres to the agreement That employees should contribute to reducing costs.

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The state agent makes mincemeat out of these arguments. It is true that a slightly larger number of people are leaving the company, but not “extraordinarily”, as the state agent concludes on the basis of the data provided by KLM itself.

Shortage of pilots? Well, an excess

Again, the company did not provide any information that would show that pilots earn more at other European airlines. In fact, there is an excess of pilots in Europe, according to KLM information.

In general, the government is also not satisfied with the conclusions of the state agent. Ministers Sigrid Kaag (Finance) and Mark Harpers (Infrastructure and Water Management) described compliance with the subsidy terms as “disappointing”. In a letter to the House of Representatives.

The Cabinet is so upset with the company’s position that it wants KLM to go on without state aid as soon as possible. The company already announced last week that it is expected to be ready in April.

6.8 billion support package

Although KLM paid back all the money it borrowed from the state or with state assistance, the company is still supported by the government. There is still an open line of credit facility, comparable to a consumer credit card.

The company can still claim this line of credit, and therefore must still comply with the terms of the state aid. At the outbreak of the Corona pandemic, KLM received a huge boost, as well as a NOW wages subsidy that all businesses can use to continue paying salaries.

The government supported KLM with a €1 billion loan and secured a €2.4 billion loan from a group of banks. If KLM can’t pay it back, the state will.

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The company was also granted a deferral of payroll taxes. Part of this amount has already been paid, but KLM still owes the tax authorities nearly €1.4 billion.

In total, more than 6.8 billion euros, nearly a quarter of a million euros per KLM employee, the government agent calculates. Not all aid has to be repaid. Now, with nearly €2 billion worth €70,000 per employee, it does not have to be repaid, at least if it is applied for correctly.

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