Air France-KLM Could Run Out Of Cash In 2010

Air France-KLM faces a bigger loss and will run low on cash next year if air traffic does not pick up and oil prices reach new highs, according to a study on the airline cited in Les Echos Friday.

In a worst-case scenario outlined in the report drafted by accounting firm Secafi for the group's works council, Air France could post a wider loss in 2009-2010 than the EUR129 million euros (USD$182 million) in 2008-09, and be short of cash within a year.

Air France-KLM was not available for comment.

Separately on Friday, British Airways unveiled plans to raise about GBP600 million pounds (USD$1 billion) through a combination of bondholder debt and bank credit in a move CEO Willie Walsh said eliminated any short-term threat of a financial crisis.

The report on Air France-KLM said that in a scenario where oil prices reached USD$70 a barrel combined with no recovery in air traffic, the French-Dutch airline could post sales down 9.5 percent and burn EUR1.5 million cash in 2009.

"Even when taking into account the Oceane loan (convertible bonds), the company could be short of cash within a year. The situation is even more worrying at the Air-France-KLM group's level," Secafi said in the study.

In June, Air France-KLM issued EUR661 million of Oceane bonds to finance the purchase of new planes.

In the medium scenario, considered the most realistic, sales would be seen down 9 percent but oil prices would remain at reasonable levels, around USD$58 a barrel. This is the target Air France-KLM revealed in May, the report said.

In a more rosy scenario, with sales down only 4 percent and oil around USD$61, the airline would reduce its loss and finance new investments. But this is less likely, after air traffic dropped in May and June, Secafi said.