Air France-KLM S.A.

Thank you, Operator. Good morning, everyone.

I'm here together with Anne Rigail, CEO of Air France; Pieter Elbers, CEO of KLM; and Frederic Gagey, Air France-KLM Group CFO. We would like to welcome you to the Air France-KLM'S Third Quarter 2020 Results Call.

The unprecedented crisis caused by COVID-19 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 Air France, KLM, HOP! and Transavia employees during these very difficult and unprecedented times.

I'm so pleased to have them as our number 1 asset as we seek to secure the continued support from all our stakeholders, including the French and Dutch governments. 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 of Air France and KLM are here today with us to provide insights on the airline objectives and the latest status of their respective transformation plans. Second, both the Dutch and French governments provided financial support packages to the Air France-KLM Group, and it's 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 and to ensure we have enough liquidity to maintain operations during this challenging period. As has 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.

Frederic will provide you with more information regarding upcoming financial operations. I suggest we go through the Q3 2020 results relatively quickly and then focus on the transformation plans and the financial operations.

The team and I will do our utmost to provide answers to your questions as clearly as we can. Turning to Page 2 of the presentation.

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 €2.5 billion, down substantially at Index 33 compared to last year's. 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 billion.

We have continued with cash preservation measures, and at the end of September, we had €12.4 billion in cash at hand, which is €1.8 billion less compared to the end of last quarter. I would now like to hand it over to our CFO, Frederic Gagey, 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.

Probably the most interesting in this slide is the title, decline of €5 billion in terms of revenue and only, important of course, a €2 billion 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 or manageable or variable because linked to the capacity.

And I see that the ratio from €5 billion to €2 billion, is a good indication that, in fact, in normal time, if you work correctly you are able to manage at least to 50% or even more than 50% of 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 third quarter, with again, revenue, which is moving from €7.6 billion to €2.5 billion, which is, of course, a totally dramatic figures.

It is more than 50% reduction of the turnover. The fuel expenses is down, not a surprise.

EBITDA, as indicated by Ben, we moved from plus €1.6 billion past years same period to minus €400 million in Q3 2020, which is a reduction of €2 billion compared to last year. Operating result is also €2 billion compared to last year, it was plus €1 billion last year, minus €1 billion in Q3 2020.

And of course, the operating margin is going down, not a surprise. In terms of net income, which is a bit lower, explained mainly, we will see that later by the restructuring provisions we have taken, mainly concerning the Voluntary Departure Plan this quarter into Air France.

So I go page 5, just to indicate that the profile of the summer was not absolutely equal in April, May, June, you have seen progressively a slight improvement of the EBITDA from minus €300 million in April, which was the beginning of the crisis to minus €200 million in June. July-August continued to improve compared to the end of the Q2.

But - and it is, of course, a quite important information, we have all been disappointed by the level of the demand in September. You remember perhaps that at the beginning of crisis, a lot of airlines were expecting a possible improvement of the situation by the end of the year.

But clearly, the result of September show that after the peak of the traffic during the summer, there is no more business people entering the aircraft and that the recovery and the compensation of the Visit Friends and Relatives from the summer by business in September is not there, which explains that the EBITDA in September is deteriorating compared to July and August. In total, however, the Q3 has been a bit better than the Q2.

Just an important indication is the load factor, in second quarter, it was 37%, so extremely low. If you think about the standard of the industry before the crisis.

And in Q3, load 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 anxious about what will happen in Q4. I move Page 6.

Just to give you 2 or 3 indications. First, clearly, the 2 - sorry all the subnetworks are not equal.

It's clear that the French domestic, medium-haul, Caribbean and Indian Ocean and Africa, were the group for many, many reasons, you know, of course, has some competitive advantage, because of COVID factor in such a way. You see that the RASK is between minus 20%, 21% to minus 40%.

So clearly, there is some privileges to some networks where the constraint in terms of traveling or the safety conditions are sufficiently equal such that it has been possible for people visiting their family going back to the country for the holidays has been possible such that there has been limited traffic, but there have been some traffic. Traffic is still negative, of course, minus 64% for France domestic, minus 64% 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 a modernization of the safety rules and where the situation between countries are not similar clearly, there is a behavior of passengers consisting not to travel or the travel is difficult for rules. And because of that, of course, you see the big difference, of the big difference in performance between seas various networks.

Another information you have to keep in mind is that, globally speaking, the yield has developed positively. So when we have RASK extremely negative, as you see on the Page 6, you have also to of keep in mind that at the global long-haul network, and it's true for each sub-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 at the top right part of the slide, Premium RASK is at minus 63%.

So premium travelers are not coming back, especially at the end of the quarter, and Economy is, of course, negative, but a bit less, only quarter-on-quarter again, minus 40%. I move to Page 7.

Just to present, I would say, the only good news for this quarter, the fact that they will, in fact, not a recovery, but a good behavior of the cargo activity for the group. We have beneficiated the first 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 a quite positive development of the yield in the industry. And I will say that Air France-KLM has been taken in a very agile way to try to take as 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 freighter fleet or by developing also what we call the mini cargo flights, which are flight using passenger aircraft, but where there is no passenger, but only cargo.

If I go page 8, you have the resume of revenues - of the economic performance per business. Network capacity down, unit revenue down and a 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 marching a bit, or compensating a bit for the quite negative situation concerning the passenger.

But all in all, of course, the biggest part of the loss of the group during third quarter is explained by network with minus €990 million of operating result. Transavia, I would say, not too bad in the current circumstance.

You see a margin negative, minus 5%, which is an operating result of minus €13 million, but in spite of a 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've signed some contracts with clients for maintenance.

There has been some negotiation in spite of the period. And there is some new contracts for this activity in the same time, of course, there is some contract which shall consult or because the client is about group 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 maintenance order book was €2 billion higher end of December '19 compared to what it is today, but it is still yet quite significant at €9.3 billion. I move Page 9 just to give, as we do usually, the split of the performance between the 2 companies.

Globally, if you look the 9-month performance, you see that KLM deteriorate operating results by €1.7 billion, Air France by €2.7 billion, which is more or less a proportional to the relative size of the 2 carriers before the crisis. I move to Page 10.

As I told you before, the link from operating results to net income is relatively simple. It is mainly explained by €565 million of restructuring costs, which are explained by the Departure Plan in Air France for the ground staff.

But also the effect of the contractual terminatio for Air France flight attendants and pilots and also the Departure Plan for HOP! So the effect of over-hedging is relatively limited, and effect of the fleet impairment also is limited during the quarter.

It's mainly explained by the progressive phase-out of some Canadair Jet at the HOP! company.

I move Page 11. I give before the link between the loss in terms of revenue and evaluation of the EBITDA, the €5 billion to €2 billion.

You'll see that it is partly explained by, we think, relatively efficient cost control, which has been engaged by the 2 management at KLM and at Air France, where also that's true supported by some mechanisms decided by the 2 states, which is in the Netherlands, NOW mechanism. And in Air France, it is [indiscernible] which is allowing the company to save some labor cost.

But the management work also, as indicated in various presentations before the control of FTEs, and you have at the bottom left of the slide, what we expect in terms of FTE evolution between today and the end of the year between Q4 2019 and Q4 2020, we expect already a reduction of the FTEs by 10% around 8 - a bit more than 8,000 people, half for KLM and half for Air France. And of course, in the next quarter and 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 ground people into Air France.

At the right of the slide, you see the estimate of the variability of the operating cost, which is contributing to the control of the loss in spite of the reduction of the turnover. Slide 12, nothing new in terms of presentation.

It is the usual slide on the net debt to evolution, of course, the 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 billion.

But in total, since the beginning of the year, it is more than €3 billion, which have been added at 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 billion. CapEx plan reduction will be more than €1.5 billion, so we continue to stick to the CapEx guidance for the full year at €2.1 billion.

And also a 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 plus €84 million, and for the 9 months, 2020, the contribution is plus €666 million, which is explained by various phenomenon, as you can imagine.

One is, of course, the fact that there is still a lot of tickets to be refund. From that, sorry, we made already a significant step into that direction.

Since March 2020, we completed that more than €1.8 billion of tickets - vouchers or tickets, sorry, I have been - we've done both, but there is still a stock of vouchers and people can use also up to the end of the next year, which are hold by the client. And another contribution to the evolution of the working capital is coming from the postponement of some payment of social charge, for example, tax but also negotiations with some suppliers.

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 to in the second quarter, concerning Air France, also following the announcement made by Mr.

Macron 2 days ago as the new confinement measures decided, Air France now is intending to have capacity below 35% for the fourth quarter, containing. Concerning KLM, which is not impacted exactly in the same way, so KLM has not been - 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 the 2 management keep a high level of flexibility, which means that if there is an adjustment to be done in the 2 ways, by the way, we are doing in due time and secondary month, it is clear that all the flights we operate are considered as incrementally cash positive. I will say that in the day, before any flight, this check is built by the controlling of the group and if we have the feeling that the flight is not positively providing cash, the flight is canceled.

So we will try to manage the seat capacity with a lot of flexibility. On the right, you see expectation we have to today using the forward booking for the month of November, December.

To be honest the number are a bit less optimist that the similar numbers we gave you at the communication on the second quarter, which is clearly indicating that we have to be extremely cautious, concerning the development of haul capacity. Page 16 to give some conclusion to this presentation, first, level of cash, €12.4 billion, and we had together the cash, which is today into the company and the available credit line we have from mainly the banks guaranteed by the state from the states themselves.

So which is, I would say, compared to 2 peers in Europe, relatively comfortable, but we see also that the cash when - 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 and 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 into the Q4, we'll continue to reimburse the tickets and vouchers 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 reimbursed between now and the end of the year.

CapEx will be limited €600 million and for your cash forecast, do not forget that we have reimbursed the hybrid bond of €400 million in October 2020. Thank you for your attention.

I give back the floor to Ben.

Merci Frederic. A clear road map has been set.

For each group airline and the group's 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, Air France is committed to go above and beyond this commitment and accelerated sustainable transition by doing the same on a shortened calendar on its domestic network by 2024, which is a condition put in place by the French State as part of the loans that were 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, Schiphol for local and transit customers, while supporting global links from Amsterdam to all major cities around the world.

Meanwhile, over the last 2 years, Air France and its employees have undergone a massive cultural shift and the company transformation has been accelerated due to COVID. The domestic market will be transformed, 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 Air France and its labor partners, representing a significant step forward for Air France. The Transavia brand helps us connect the Netherlands and France to key leisure destinations.

This too, including its attractive brand positioning along with the added flexibility to Transavia France now brings will help us better position ourselves to compete against low-cost carriers in key markets not previously served. Going forward, Transavia will continue to grow and compete against these low-cost competitors, where there is demand for its distinctive product soon to be further improved with the addition of benefits provided by our loyalty program Flying 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 Air France Global Hub in Charles de Gaulle and the 50% market share Air France enjoys at the strategically located Paris-Orly Airport, as well as Amsterdam Schiphol, the best transit hub in Europe. We have a well-diversified global network and a unique high end leisure demand through and from Paris, which we expect to return earlier than the business segment.

So despite the commendable efforts from Pieter and Anne, 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 measures such as rapid detection tests for customers departing from Paris, both, Oise and Orly and Amsterdam Schiphol. 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 Pieter and to Anne, to go into more details regarding the transformation plans at KLM and Air France.

Thank you, Ben. I think it's me looking to the sequence of the slides for the transformation plan of KLM.

Is that correct?

Yes. Pieter, we can't hear you.

Okay, I'll 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 the hubs in Europe.

And clearly, the group is in a great position with hubs in CDG and 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 Board, our restructuring plan with 5 very strong pillars, where we adjust - first of all, we make the organization smaller, cheaper, more agile, more sustainable, and at the end of the day, make sure that we are adopting 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 first big step in 2021 of another €750 million 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 quarter of around 5,000 jobs that's all been completed already and signed by collective and 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 production levels. Part of the cost savings are also by reduction of 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 a reduction of labor cost, 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 1 and that should be finished in the next couple of days, really in the discussions with the government. That is for the KLM restructuring plan.

I think I give the word to Anne now.

Yes. Thank you, Pieter.

So on Slide 22, you can see the transformation plan of Air France. We had built end of November 2019 [transformation/restructuring] plan.

To increase Air France margin and bring it to the level of the competition by 2023. This plan has been accelerated and amplified to the COVID prices context.

It's based on 6 pillars, Ben has told about it, the restructuration of the domestic network that lost €200 million in 2019, with a strong decrease of the capacity of our regional strategy subsidy, HOP! by about 50%.

HOP! will refocus on our hubs of Orly and Lyon, with the growth of Transavia France, our low-cost tool from Orly on the domestic network and from region-to-region to be able to compete with local carriers.

And Air France in Orly remaining on La Navette routes, that is Orly to Marseille to Toulouse, and Tunis. So this plan is in progress, and we are implementing it even in the COVID crisis.

The second part is a strong optimization, of course, of all external spendings. A real transformation of our support functions to be more agile with a decrease of 30% of those functions, 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 environmental footprint by 25%.

With each new generation aircraft coming, we are - we have ongoing the arrival of the 350 in an order of 38, 350 and also the arrival of the Airbus-220 that will happen next year in the winter. The 6 pillar consists of recovery plan and commercial action plan on our offer.

So next slide, 23. The transformation plan will bring €1.2 billion of structural benefits by 2022.

It will allow us to decrease our staff by more than 8,500 FTE by 2022, that is about minus 16%. We expect minus 11% by the first semester of 2021, that will bring around €500 million 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 Labor. Added to this FTE decrease, we have a reduction of salaries due to two 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 crews, there is an important part of the wages that is impacted, that is variable and impacted by the decrease of the flight hours.

Maybe it's three more comments. The first one is that we pursue a positive social dialogue.

And we see several agreements that have been signed this year, with the pilots. Of course, the removal of the historical constraints to allow Transavia France to grow, including on the domestic markets.

With the pilot and the cabin crew, they have negotiated and signed and done collective contract termination. With the ground staff, the social plan that we call in for [indiscernible] that will be launched as of the validation as also be valuated by the union.

And just this week and that will be very good news, we have signed with cabin crew 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 domestic network with a decrease of 50% of our emissions in net value between 2019 and 2024, including the closure of domestic routes, when there is an alternative by train of less than 2 hours and 30 minutes.

So we closed Orly to Bordeaux to Lyon and two north routes. We are also currently negotiating agreements implement what we call in France, it's a French scheme, long-term partial activity for the two years to come.

And as Frederic said, 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. Merci, Anne.

Thank you, Pieter. So operator, we can move now on to questions.

And because of the lockdown here in France, we have Pieter Elbers in Amsterdam, and we have Frederic Gagey, Anne Rigail and myself here at lead. So we'll do our best to coordinate the Q&A session, depending on the - on what the specific question is.

So back to you, operator.

Three as well, if I may. Firstly, can you just give an update in terms of how the monthly cash burn is progressing, and I guess, August, September, October?

And any views on how you see it progressing as we go 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 with regards of potentially converting debt into equity or new equity issuance? And briefly, 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 still not had a steady-state 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 a precise indication. I see that they have been, however, relatively clear in the comment with a rough Q4 EBIT compared to Q3, and it is a clear guidance, if you'll ask.

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 indicated 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, not positive that clearly, the cash development of the cash drain, we are on a monthly basis will clearly, I think, deteriorate during the next three months at least. So I cannot give you global indication, but I will be a bit less positive compared to what we have observed during the 6 first months of the crisis.

Concerning the recap Ben? Concerning the recap, okay.

I am looking as you to the various publications of airlines, I will say, mainly in Europe, and you see that the equity of all our peers are, of course, deteriorating. There is one element which is bit specific for Air France-KLM, which is that the state aid, which has been worked to the two companies in May and July a 2020 where only with 100% debt component.

And when you see the situation to some of our colleagues, I think, for example, to SAS, to Singapore Airlines to Lufthansa, there has been during this scheme aid, also an equity component. So it is not a surprise to consider that for Air France-KLM one day, we will also need to find a way to improve the equity, which has been not supported, which is said, by the pure debt component of the state scheme aids.

Anyway, as I told yesterday, when I was speaking with some people at the Board, the wisest is not to give too precise indication concerning the debt. But I will say that clearly, we need this type of intervention and at the level of the equity.

And second, there is various, not an infinity, but there will be 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 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 the question.

Hi, Jarrod, the question was how do we see revenue for the coming year. So we did see a positive build up 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 for the Air France-KLM, that was most other carriers or all other carriers, did not materialize. And so with the new lockdown in France, we're making adjustments to the Air France capacity plans 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 [indiscernible] destinations from France, which are [indiscernible] Reno, very large markets to and from Paris where prior - where prior - where in the summer, we actually saw, again, demand that was simply more than expected. On the KLM side, we've had a strong cargo demand that we've been experiencing.

And with the 4 full freighters as well as the support we have from the NOW and the NOW 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 yet to give any guidance on capacity or revenue for 2021.

Sorry, just on the last question, if I may. Obviously, the expectation is for an even bigger revenue fall, I guess.

But the question was really around drop-through rates 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 were greater?

Yes. I would agree a bit with you.

Let's say, for example, that the departure of some people of the company, something which is progressive. As I told during the presentation concerning Air France, for example, the first effect of the Voluntary Departure Plan will be only seen in 2020/'21 and a bit further.

There is some plan concerning the cost control, the cost reduction, which also ongoing negotiation, we are with supplier. So we're considering the product or the type of service we are asking to our suppliers.

I would say it is an ongoing process. And I will was upbeat on - you will find considering that the more we go, the more effect of fixed cost savings will be visible, which means that the ratio - loss of revenue, loss of EBITDA that I have indicated in the Slide 3 will rather improve in the future than the contrary.

Three questions, please. First you mentioned more refunds are likely.

How high do you estimate the total cash at least still to be reimbursed to passengers? Second, since KLM has been the profitability driver of the group over recent years and KLM business model strongly relies on transfer traffic.

Would you please discuss your expectation on trends for transfer traffic, both for the leisure and corporate segment over the next three years? And third, again, a strong cargo performance.

Is the expectation in the sector are that it will take several years until passengers traffic recovers pre-crisis level. Do you believe airlines try to again, focus more on cargo activities and convert passenger airplanes into cargo airplanes, which could increase cargo capacities in the market and dedicated cargo capacities at Air France will seek these over recent years.

Do you see the opportunity to pocket more on cargo going forward?

I can take the one. So it's concerning the refund, the presentation, first amount we have refunded since the beginning of the crisis, around €1.8 billion, which is a significant amount.

We have put in place some automatic tools to facilitate. Reimbursement for the ticket for the passenger, we were pressuring to be immediately on board, which we can totally, of course, could consider as an option.

We have also proposed that with the - if you keep the voucher, there is an interest for you to give the voucher because there will be a reduction in future ticket. You will buy.

So we try to have, I will say, as a nice and open relation with clients concerning the reimbursement of their ticket when the flight isn't flown. We work [indiscernible], of course, we have seen that in the press from time to time that at the beginning due to the big amount of ticket to be reimbursed 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 spirit.

Now it's clear that there is still a stock of ticket, of vouchers to be reimbursed. Of course, we prefer the passenger keeping the voucher, that's why we have made this discount.

If you keep the voucher and you buy the ticket later and we will continue to reimburse the floor of the ticket when it's requested by the passengers. Difficult to say exactly what will be the amount during the next three months.

Clearly further date of - and for the flight in the current stock is not always the beginning of the crisis, we have some tickets which have been sold two weeks ago. Finally, the flight is canceled and probably, there would be less pressure to reimburse this ticket for the August.

It will depend on the behavior of the passengers, so difficult to make an estimate. To be honest, there is no reason to see a max elevation on reimbursement, we'll forecast, we rather see a stable flows of ticket to be reimbursed with a stable impact in terms of cash.

If we can get Pieter to answer the second question, if you're able to hear us on the specific KLM one?

Thank you, I hear you. No problem.

Yes, we believe that the connecting hubs will really lead to recovery and the ability to have the smaller flows, or flows which just had a direct flight, that can no longer sustain direct flights with demand which is down will really have a need the hubs to have the passengers flowing. So we do believe that especially the transatlantic hubs where the traffic will return once the situation is stabilized and the business environment will be improving.

We will have the strong European Hub, CDG Amsterdam and then the upstream delta on the U.S. side, helping us to start recovering the traffic.

The reintroduction of some of these smaller spokes will be much longer simply because there's no connection. And in order to support that, we have really brought back not so much the 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, as you show in the presentation of Frederic. So again, there, the ability of the network and the connections and smaller flows will really help us through the recovery.

Then having said that, it will take some time, but we believe that our model and the strong hubs are really helpful in order to participate in the recovery taking place going forward.

And on the third question regarding our views on cargo in the medium and long term. Right now, of course, it's a unique period in terms of cargo demand, cargo yield, we do feel we are very well positioned for the medium and long term.

Should cargo yields be higher, should demand accelerate to what it was previous to COVID, we do have 59, 777-300ERs that will be in the fleet by early next year. We do, of course, have 6 full freighter aircraft.

Difficult to predict medium-term what the demand will be. But what I can say we're very pleased with the flexibility that we have to pivot and ensure that we're well positioned to take advantage of potential higher yields.

If I can ask three quick ones, please. The first one, as difficult as it is, I'd like to understand your base case for summer 2021 capacity planning at this point, even a reference point that I'm sure you'll continue to sense check would be very helpful to understand.

Second question, Airport of Paris, you mentioned briefly that they're aiming for a tariff increase for next year. I guess you'd hope for the opposite.

Just interested in what your expectations of how that negotiation plays out are? And then the third question, obviously, the equity question was asked earlier by Jarrod.

And clearly one of your competitors, maintenance business has been a key part of their potential equity recovery story. So I'm just interested in how you think about your own maintenance business, which is usually quite a valuable asset.

Is that potentially part of your recapitalization cloud, or are you firmly against anybody else owning even a minority stake in that business, given its relevance to the group?

I want to explain that concerning the capacity. I will rather make a comparison compared to our expectation at the beginning of the crisis.

When we speak today with the two teams, I will say that compared to the plans they had in March, April, when we have made some scenarios concerning a possible recovery. We were only are France Air and I will say, also a lot of our peers, but to say the industry was considering a possible slow recovery by the end of the year 2020.

And looking for the time being to the first numbers coming from the budget preparation, what is admitted by the revenue management teams of the group is that they can see there that at least this recovery period is postponed to 6 months, which means that when they build the scenario in terms of revenue and capacity for the year 2021, then [indiscernible] use what they plan to have in December 2019, the tax is level, but in July 2021. So it is something like a postponement of 6 months concerning - concerning the recovery scheme we had in mind before, since last one or two months.

So clearly, postponed month by 6 months of the recovery scheme we had in mind at the beginning of the crisis. So in terms of capacity, of course, we have some numbers, that I will say that we will clearly keep the agility and the capability to adjust or down or up in case of evolution of the market.

So I will not give you, at that stage, the precise numbers, we will put into the budget. We'll do that when we will discuss the Q4 resulting in February 2021 and then, of course, we will give you the capacity for year 21.

Yes, maybe on the question of airport charges and the recent demand of Aéroports de Paris. 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 with Aéroports de Paris to identify all the action plans to commonly find some cost decrease, of course, it's difficult for us to accept any cost increase. So we routed against it, and we asked at least to freeze it.

It is the decision of the regulator.

Two for me, please. First of all, you've talked a lot about restructuring.

I'm just going to flag here some headlines we've seen from the KLM, rather the Dutch Government rejecting the KLM restructuring plan, and with that in mind, obviously, a comment on that would be good. Also just maybe just run us through the core - the key hurdles you're seeing to restructuring, whether it's any particular union resistance?

I know you've done a good job on getting the unions on the side. I was wondering where we stood specifically on the key blockages that may be coming?

The second one is on travel corridors or bridges or whatever you want to call it. Just wondering where you were on airport testing, whether you're trialing any pre flight testing in a particular route?

And obviously, where your regulator is on the potential for any bilateral agreements. I assume that everything is on hold during the French lookdown, but an update on France and the Netherlands would be useful.

Sure, Pieter - if Pieter can answer the first question and then we can have both, Pieter and I 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 have 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 first stage of the cost reductions have been agreed with the unions up to early/end 2022. The discussions with the government are now whether the duration of the union agreement is up to '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 and of the achievements, which we have done already now, or 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 histories like KLM, 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 we're having for 2021, I 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 their endorsement of the full plan where, indeed, we are still having some debates on the sort of remaining part of labor concessions for the years after 2022. We'll continue to do that in the next few days.

Thank you.

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 deferrals of supplier payments and when those would roll off? And also, secondly, to what extent are the restructuring costs of €565 million expensed in the third quarter, yet to be paid in cash.

For the [restructuring] cost, let us say that everything concerning voluntary departure plan in KLM has to be paid before the end of the year, mainly, I would say. And for Air France, a large part of that was the largest part has to be paid at the first part of 2021.

Concerning the first 1 month of some of - some payment, I will, for example, 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 proportionally. For Air France, we have avoided in 2020, €700 million of expenses and they will have to be paid over the next two years, which is once - 2/3, say, 2021 and 1/3 in 2022.

So let us say that it is not an insignificant amount, but for a large part of that, it will be a spread over the next two years and I'm not so sure that Pieter [is informed] but in the conversation we have with Erik Swelheim, the CFO of KLM, I would say it is the same type of - order of magnitude. Concerning the postponement of the payment to suppliers.

I will say that generally speaking, it is a bit narrow, and we have avoid some payment for a duration of 6 months, maybe say maximum, for example, with lessor, it was more three, 5 months of postponement of the bills. So I will say that we are already paid and will pay in Q4, a part of the bills, which has been postponed during the period of beginning of the crisis.

This is what I will say concerning the postponement and the cash impact of the restructuring. Concerning the restructuring for fleet, I will say that normally, it is longer because, first, there is part of these restructuring costs, which are not cash.

It can be just a writing off some assets. And part of it also is an accelerated depreciation.

So there is not immediate cash impact, but there is also, of course, a cash impact for sales restructuring. But they are, I would say, more spread over a longer period.

I think also that we missed the question concerning sales of assets in maintenance or in cargo Ben? Of course, it can be part of the plan, but to be candid, for the time being, there is no precise project in this domain.

Does that mean that we have not to consider it, especially if the crisis was deeper and longer, but for the time being, we have not yet finalized or even studied such a project in terms of selling this type of activity.

Sorry, on the supplier payments, could you just give an indication of the quantum of outstanding supplier payment deferrals as of third quarter?

My thought is not very big, so I think that it is more or less the same for KLM. I have only the data just given to me by Steven, the CFO of Air France.

I don't know if he's on the call? Just want to give the indication coming from Air France and suppose that it is the same for KLM, which would be true.

Can I ask you to talk a little bit about why you're flying so much more than your peers? Martinair [indiscernible] and network and 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 asked, but I don't think it got addressed about the efforts to make some progress with pre-flight testing.

But really, particularly what I'd be interested in learning is how can you guys try and encourage multinational agreements, how can we - you lobby the EU or more broad international agreements because obviously, unilateral decisions by countries don't open the market?

Okay. Thank you, Andrew.

So in terms of the amount of flying, the KLM and Air France are doing relative to the other major carriers in Europe, there are, of course, these two employee pay support programs that are in place, the Activity Patio in France and the NOW program in the Netherlands, which provide us with a relatively large euro amount of support. So we have that as number one.

Number two, on the Air France side, as I said earlier, the French domestic market is rather large, which is unique relative to other global peers. And then, of course, the very large volumes of customers that fly to and from the French overseas territories.

So that's a reason on that side, the Air France side. On the KLM side, the cargo network and amount of cargo that we've been able to secure relative to prior COVID numbers has also significantly helped us.

But I think the most important metric and most important thing that we have in place here is that no flight, none of our flights operate without being cash flow positive, that is the rule we have in place throughout the group. And that there is no excess capacity that is not generating any cash.

What I could ask if Pieter and Anne wanted to just elaborate a little bit further on how the decisions are made and what they've been able to achieve over the last couple of months? And how - why we are confident in putting the amount of capacity we're having in for the rest of the year based on the experience we've had in the Q3.

Just as an example, first month in October, the capacity we had in place was performed exactly as we had expected. So maybe start off with Pieter, and then Anne can make a few comments after.

Sure. Thank you, Ben.

Maybe just to echo and to underline the words both Ben and Frederic. We have quickly reestablished our European network in - during the summer months in - basically in July, and with that, we are having very small flows, but providing at least some feed to the long-haul network we're having.

That in combination with the very significant cargo amounts we're having and the fact that the labor support program is sort of pushing down the level to where variable costs are being covered, we have been able to operate relatively as compared to some of our peers, relatively a strong network. Again, here, the fact that our network is very much spread across the globe, much less concentrated on one 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 operated on a level below flight contribution.

So making up more than all the variable 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 I think going forward, with many of the competitors taking out long-haul 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 programs in place.

On the Air France side, if I look at the figures of October, we were able to have a 40% activity compared to last year, mainly pushed by domestic, it was above 50%. Hub was below 30%, and long-haul was at 40%, quite dynamic on French Antilles, French overseas islands.

Also some destinations in Africa, where we have a lot of Visit Friends and Relatives traffic that was quite dynamic since the summer. And if I look at the other regions, of course, it's a lot weaker on NATO, on North Atlantic and on Asia.

But we still are capable of having some routes that are cash positive again, as Pieter and Ben said, we are reviewing every day the margin contribution in terms of cash of each flight and each flight has to be positive, otherwise, we cancel it in anticipation. So on those regions, North Atlantic and Asia, we had a strong benefit of the cargo that can be up to 48% of the revenue on those routes.

On Air France side, I think it is because the core of our fleet is 777-300s with a huge capacity for cargo, so that helps a lot. That is the main reason for us to still fly on those destinations.

And 350 are also aircrafts that are very useful for cargo.

And then on your question regarding lobbying for corridors, 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 and trying to lobby the various jurisdictions and governments around the world to get to 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, have the two major international carriers, Schiphol and Oise at - that we have [indiscernible] in.

And we have a strong lobby going on there. A4E, Airlines for Europe, is also lobbying on behalf of all the long-haul carriers in Europe.

And we have had some success with A4E 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 has helped us reduce activity significantly at the slot constrained airports that we operate from. And that, of course, has helped us ensure that we maintain these key assets at key airports.

So we do have some good experience with A4E. We're hoping that, that could help us get a larger a louder voice.

Such as, when I'd say is complete alignment with IATA, to Dutch state, the French state. And of course, there are other partners around the world, in particular, Delta.

I had a question on early fleet retirements at KLM specifically. The structural capacity reduction at KLM from earlier relatively low in the context of the 15% headcount reduction at KLM and also, [indiscernible] 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 747 retirement is in the mid-single-digit area.

What is the main reason to be reluctant on early flight retirements at KLM specifically?

What I can say, I can start and then Pieter can chime in after, is we do have a medium, long-term plan to simplify the fleets at both KLM and in Air France. At KLM, of course, the 747s have now been fully exited.

We are moving toward a simplified 787 777 fleet, where we do have a dual cockpit waiting in place, which will make - put in place the most efficient long-haul fleet of any airline in Europe with any of the major carriers in Europe at KLM, at Air France, similar exercise, obviously, many more aircraft types, so not as straight forward, the a380s are now out, the a340s are out. And there is a common pilot waiting now on the a330s and the a350s.

And of course, a large fleet of 777s, [indiscernible] small fleet of 787s. The removal of aircraft from either one of the carriers has not been our strategy to date.

We have halted all overhauls and engine work that is not acquired, which is removed a significant amount of CapEx, which you'll have seen in the figures that Frederic released publicly this morning. And so the planes that are still operating, we're not taking the position as of today to ground planes that 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 one aircraft type at KLM, which we will - are continuing to consider, of course, is the Airbus A330. We do have some flexibility there.

And on the Air France side, it's as simple as I can get up until now that is Pieter and Anne want to go into a little bit more detail on the specific fleet blends at either airline and how we're operating day-to-day and what we see us going in the short term, I think that would be helpful to answer your question. So maybe Pieter can start.

Yes. Thank you, Ben.

No, your observation is right that the number of 747s regards is a relatively limited number yet. It was important to do so.

And by doing so, we could phase out that entire fleet type and having pilots retrained and so on and so forth. I think the difference here really for the next fleet type 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 one.

And two, we would lack any flexibility at this point in time to anticipate any return of traffic since I think that'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 wide-bodies on order going forward and not very more.

So every fleet, which is going out, eventually would mean a structural reduction of capacity, and that's why we are 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 747. There's no immediate cost saving with the 330s, which are a mix of ownership and leases, and we would like 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 330s. The 78s are the core in combination of the triples for the operation and the triple sensing and just to echo remark on the [indiscernible] the cargo capacity.

So the actual operation, the 332 hundred are the sort of leased operated number of flights today.

On Air France side, I think many things we say, we have exited the 380, the [indiscernible] sorry. For the moment, it's mostly 777-300 and 350 that are flying on the long-haul side.

We will exit the 777-200s that are leased and that are come to an end. It's part of the renewal.

There is no major cost saving and decided to exit earlier other aircraft. What we try to do to optimize the partial activity scheme and the subsidy of the French government on the partial activity scheme is to have a longer grounding of the aircraft.

So we will judge the capacity, as we said, we will announce of the consignment and really optimize the part of the fleet that is flying to save to the maximum to the maintenance cost. That is the urgent decision to make.

Okay. Well, thank you, everyone, for participating in this call, and we look forward to speaking with you at the next call, hopefully, under better circumstances.