Obligation Air France KLM 1.875% ( FR0013477254 ) en EUR

Air France KLM

100.06 % ▲

France

FR0013477254 ( en EUR )

1.875% par an ( paiement annuel )

16/01/2025 - Obligation échue

Prospectus brochure de l'obligation Air France-Klm FR0013477254 en EUR 1.875%, échue

F01699BL4

Air France-KLM est une compagnie aérienne multinationale née de la fusion d'Air France et KLM Royal Dutch Airlines, opérant un vaste réseau de vols passagers et cargo à travers le monde.

L'Obligation émise par Air France KLM ( France ) , en EUR, avec le code ISIN FR0013477254, paye un coupon de 1.875% par an.
Le paiement des coupons est annuel et la maturité de l'Obligation est le 16/01/2025

Prospectus dated 14 January 2020

Air France-KLM SA
(incorporated as a société anonyme in France)
750,000,000 1.875 per cent. Notes due 16 January 2025
Issue price: 99.411 per cent.

The 750,000,000 1.875 per cent. Notes due 16 January 2025 (the "Notes") are to be issued by Air France-KLM (the "Issuer" or "Air France-
KLM") on 16 January 2020 (the "Issue Date").
Each Note will bear interest on its principal amount from (and including) the Issue Date to (but excluding) 16 January 2025 at a fixed rate of
1.875 per cent. per annum payable annually in arrear on 16 January in each year and commencing on 16 January 2021, as further described in
the section "Terms and Conditions of the Notes Interest" of this Prospectus. Payments in respect of the Notes will be made without deduction
for or on account of taxes imposed or levied by the Republic of France to the extent described under "Terms and Conditions of the Notes
Taxation"
Unless previously redeemed or purchased and cancelled, the Notes will be redeemed in full at their principal amount on 16 January 2025 (the
"Maturity Date"). The Notes may, and in certain circumstances shall, be redeemed before the Maturity Date, in whole only but not in part, at
their principal amount, together with, any accrued interest, notably in the event that certain French taxes are imposed (See "Terms and
Conditions of the Notes - Redemption and Purchase Redemption for Taxation Reasons").
The Issuer may, at its option (i) from and including the date falling three (3) months before the Maturity Date to but excluding the Maturity
Date, redeem the Notes outstanding, in whole or in part, at par plus accrued interest, in accordance with the provisions set out in "Terms and
Conditions of the Notes Redemption and Purchase Pre-Maturity Call Option"; (ii) redeem the Notes, in whole or in part, at any time, prior to
the first day of the pre-maturity call option period, in accordance with the provisions set out in "Terms and Conditions of the Notes
Redemption and Purchase Make-Whole Redemption by the Issuer" and (iii) redeem all but not some only of the outstanding Notes in the
event that seventy-five (75) per cent. or more of the initial aggregate nominal amount of the Notes have been redeemed and cancelled, in
accordance with the provisions set out in "Terms and Conditions of the Notes Redemption and Purchase Clean-Up Call Option".
Noteholders (as defined in "Terms and Conditions of the Notes") will be entitled, in the event of a Change of Control of the Issuer or in the
event that a person, other than an entity controlled directly or indirectly by the Issuer (within the meaning of Article L.233-3 of the French Code
de commerce), came to hold (via purchase, subscription or any other means) (i) more than 50% of the share capital of Société Air France and/or
the economic rights of KLM or (ii) more than 50% of the voting rights of Société Air France and/or KLM, to request at their sole option the
Issuer to redeem all or part of their Notes at their principal amount together with any accrued interest, subject to certain conditions as more fully
described in "Terms and Conditions of the Notes Change of Control".
This Prospectus (including the documents incorporated by reference) constitutes a prospectus (the "Prospectus") for the purposes of Article 6
of Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities
are offered to the public or admitted to trading on a regulated market, as amended or superseded (the "Prospectus Regulation"). This
Prospectus has been approved by the French Autorité des marchés financiers (the "AMF") in France in its capacity as competent authority
pursuant to the Prospectus Regulation. The AMF only approves this Prospectus as meeting the standards of completeness, comprehensibility
and consistency imposed by the Prospectus Regulation. Such approval should not be considered as an endorsement of either the Issuer or the
quality of the Notes that are the subject of this Prospectus. Investors should make their own assessment as to the suitability of investing in the
Notes.
Application has been made for the Notes to be admitted to trading on the regulated market of Euronext Paris ("Euronext Paris") with effect
from the Issue Date. Euronext Paris is a regulated market for the purposes of Directive 2014/65/UE of the European Parliament and of the
Council on markets in financial instruments, as amended, appearing on the list of regulated markets issued by the European Securities and
Markets Authority (each a "Regulated Market").
This Prospectus will be valid until the date of admission of the Notes to trading on Euronext Paris. The obligation to supplement the Prospectus
in the event of significant new factors, material mistakes or material inaccuracies will not apply when the Prospectus is no longer valid.
The Notes will on the Issue Date be inscribed (inscription en compte) in the books of Euroclear France which shall credit the accounts of the
Account Holders (as defined in "Terms and Conditions of the Notes Form, Denomination and Title" herein) including Euroclear Bank
SA/NV ("Euroclear") and the depositary bank for Clearstream Banking S.A. ("Clearstream").
The Notes will be issued in dematerialised bearer form (au porteur) in the denomination of 100,000 each. The Notes will at all times be
represented in book entry form (dématérialisé) in the books of the Account Holders (as defined in "Terms and Conditions of the Notes Form,
Denomination and Title" herein) in compliance with Articles L. 211-3 et seq. and R. 211-1 et seq. of the French Code monétaire et financier.
No physical document of title (including certificats représentatifs pursuant to Article R. 211-7 of the French Code monétaire et financier) will
be issued in respect of the Notes.
The Notes are not expected to be assigned a rating. At the date hereof, the Issuer is not rated.
An investment in the Notes involves certain risks. Prospective investors should have regard to the factors described under the Section
"Risk Factors" in this Prospectus. Unless otherwise stated, references in this Prospectus to the "Group" or to the "Air France-KLM
Group" are references to the Issuer and its consolidated subsidiaries.
Copies of this Prospectus and the documents incorporated by reference in this Prospectus will be published on the websites of the
Issuer (www.airfranceklm.com) and of the AMF (www.amf-france.org), save for the 2019 First-Half Financial Report, the Third
Quarter 2019 Financial Statements and the Third Quarter 2019 Results Press Release which will only be available on the website of the
Issuer.
Joint Global Coordinators and Joint Bookrunners
BNP PARIBAS
Commerzbank
Joint Bookrunners
Deutsche Bank
Crédit Agricole CIB
Morgan Stanley
Santander Corporate & Investment Banking

This Prospectus constitutes a prospectus for the purposes of Article 6 of the Prospectus Regulation. This
Prospectus is to be read in conjunction with all the documents which are incorporated herein by reference (see
Section "Documents Incorporated by Reference" below).
This Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Issuer or the Joint
Bookrunners (as defined in "Subscription and Sale" below) to subscribe or purchase any of the Notes. The
distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law.
Persons into whose possession this Prospectus comes are required by the Issuer and the Joint Bookrunners to
inform themselves about and to observe any such restrictions.
Potential purchasers and sellers of the Notes should be aware that they may be required to pay taxes or other
documentary charges or duties in accordance with the laws and practices of the country where the Notes are
transferred or other jurisdictions (including as a result of change in law). Potential investors are advised to ask
for their own tax adviser's advice on their individual taxation with respect to the acquisition, holding, sale and
redemption of the Notes. Only these advisers are in a position to duly consider the specific situation of the
potential investor.
A number of Member States of the European Union are currently negotiating to introduce a financial
transactions tax ("FTT") in the scope of which transactions in the Notes may fall. The scope of any such tax is
still uncertain as well as any potential timing of implementation. If the currently discussed text or any similar
tax is adopted, transactions in the Notes would be subject to higher costs, and the liquidity of the market for the
Notes may be diminished. Prospective holders of the Notes are advised to seek their own professional advice in
relation to the FTT.
Neither the Notes nor the long-term debt of the Issuer are rated. One or more independent credit rating agencies
may assign credit ratings to the Notes. The ratings may not reflect the potential impact of all risks related to
structure, market, additional factors discussed below, and other factors that may affect the value of the Notes.
A rating or the absence of a rating is not a recommendation to buy, sell or hold securities.
Each potential investor in the Notes must determine the suitability of that investment in light of its own
circumstances. In particular, each potential investor should:
(i)
have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and
risks of investing in the Notes and the information contained or incorporated by reference in this
Prospectus or any applicable supplement;
(ii)
have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the Notes and the impact such investment will have on
its overall investment portfolio;
(iii)
have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes,
including where the currency for principal or interest payments is different from the potential
investor's currency;
(iv)
understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant
indices and financial markets; and
(v)
be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for
economic, interest rate and other factors that may affect its investment and its ability to bear the
applicable risks.
The investment activities of certain investors are subject to legal investment laws and regulations, or review or
regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether
and to what extent (1) the Notes are legal investments for it, (2) the Notes can be used as collateral for various
types of borrowing and (3) other restrictions apply to its purchase, sale or pledge of any Notes. Financial
institutions should consult their legal advisers or the appropriate regulators to determine the appropriate
treatment of the Notes under any applicable risk-based capital or similar rules.
For a description of further restrictions on offers and sales of Notes and the distribution of this Prospectus, see
Section "Subscription and Sale" below.
IMPORTANT - EEA RETAIL INVESTORS The Notes are not intended to be offered, sold or otherwise made
available to and, with effect from such date, should not be offered, sold or otherwise made available to any retail
investor in the European Economic Area (the "EEA"). For these purposes, a retail investor means a person who
is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as
amended, "MiFID II"); or (ii) a customer within the meaning of Directive 2016/97(EU), as amended, where
that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.
Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the
"PRIIPs Regulation") for offering or selling the Notes or otherwise making them available to retail investors in

the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to
any retail investor in the EEA may be unlawful under the PRIIPs Regulation.
MiFID II product governance / Professional investors and ECPs only target market Solely for the purposes of
each manufacturer's product approval process, the target market assessment in respect of the Notes, taking into
account the five (5) categories referred to in item 18 of the Guidelines published by the European Securities and
Markets Authority on 5 February 2018, has led to the conclusion that: (i) the target market for Notes is eligible
counterparties and professional clients only, each as defined in MiFID II; and (ii) all channels for distribution
of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently
offering, selling or recommending the Notes (a "distributor") should take into consideration the manufacturers'
target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own
target market assessment in respect of the Notes (by either adopting or refining the manufacturers' target
market assessment) and determining appropriate distribution channels.
No person is or has been authorised to give any information or to make any representations other than those
contained in this Prospectus and, if given or made, such information or representations must not be relied upon
as having been authorised by, or on behalf of, the Issuer or the Joint Bookrunners.
Neither the delivery of this Prospectus nor any sale made in connection herewith shall, under any
circumstances, create any implication that there has been no change in the affairs of the Issuer or the Group,
since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented
or that there has been no adverse change in the financial position of the Issuer since the date hereof or the date
upon which this Prospectus has been most recently amended or supplemented or that the information contained
in it or any other information supplied in connection with the Notes is correct as of any time subsequent to the
date on which it is supplied or, if different, the date indicated in the document containing the same.
The Joint Bookrunners have not separately verified the information or representation contained or incorporated
by reference herein. To the fullest extent permitted by law, the Joint Bookrunners accept no responsibility
whatsoever for the information or representation contained or incorporated by reference in this Prospectus or
any other information provided by the Issuer or in connection with the Notes or their distribution or for any
other statement, made or purported to be made by the Joint Bookrunners or on their behalf in connection with
the Issuer or the offering and issue of the Notes. The Joint Bookrunners accordingly disclaim all and any
liability whether arising in tort or contract or otherwise (save as referred to above) which they might otherwise
have in respect of this Prospectus or any such information or statement.
Neither this Prospectus nor any other information supplied in connection with the Notes or their distribution is
intended to provide the basis of any credit or other evaluation or should be considered as a recommendation by
the Issuer or the Joint Bookrunners that any recipient of this Prospectus or any other information supplied in
connection with the Notes or their distribution should purchase any of the Notes. None of the Joint
Bookrunners acts as a fiduciary to any investor or potential investor in the Notes. Each investor contemplating
subscribing or purchasing Notes should make its own independent investigation of the financial condition and
affairs, its own appraisal of the creditworthiness, of the Issuer or the Group and of the terms of the offering,
including the merits and risks involved. For further details, see Section "Risk Factors" herein. The contents of
this Prospectus are not to be construed as legal, business or tax advice. Each prospective investor should
subscribe for or consult its own advisers as to legal, tax, financial, credit and related aspects of an investment in
the Notes. None of the Joint Bookrunners undertakes to review the financial condition or affairs of the Issuer or
the Group after the date of this Prospectus nor to advise any investor or potential investor in the Notes of any
information coming to the attention of any of the Joint Bookrunners.

TABLE OF CONTENTS
RISK FACTORS .................................................................................................................................................. 1
TERMS AND CONDITIONS OF THE NOTES ............................................................................................... 22
USE AND ESTIMATED NET AMOUNT OF PROCEEDS ............................................................................. 32
RECENT DEVELOPMENTS ............................................................................................................................ 33
DOCUMENTS INCORPORATED BY REFERENCE ..................................................................................... 37
SUBSCRIPTION AND SALE ........................................................................................................................... 42
GENERAL INFORMATION............................................................................................................................. 44
PERSONS RESPONSIBLE FOR THE INFORMATION GIVEN IN THE PROSPECTUS ............................ 48

(

i)

RISK FACTORS
The Issuer considers that the risk factors described below are important to make an investment decision in the Notes
and/or may alter its ability to fulfil its obligations under the Notes towards investors. The risk factors may relate to the
Issuer and the Group. The risk factors that the Issuer considers to be the most important at the date of this Prospectus
are mentioned first within each of the risk categories in this Prospectus.
The following describes the main risk factors that the Issuer considers, as of the date hereof, material with respect to the
Notes. The risks described below are not the only risks the Issuer and its subsidiaries face and they do not describe all of
the risks of an investment in the Notes. The inability of the Issuer to pay interest, principal or other amounts on or in
connection with any Notes may occur for other reasons and the Issuer does not represent that the statements below
regarding the risks of holding any Notes are exhaustive. Additional risks and uncertainties not currently known to the
Issuer or that it currently believes to be immaterial could also have a material impact on its business operations or on an
investment in the Notes.
Prior to making an investment decision in the Notes, prospective investors should consider carefully all the information
contained or incorporated by reference in this Prospectus, including the risk factors detailed below. In particular,
prospective investors, subscribers and holders of Notes must make their own analysis and assessment of all the risks
associated to the Notes and the risks related to the Issuer, its activities and financial position. They should also consult
their own financial or legal advisors as to the risks entailed by an investment in the Notes and the suitability of such an
investment in light of their particular circumstances.
The Notes should only be purchased by investors who are financial institutions or other professional investors or
qualified investors who are able to assess the specific risks implied by an investment in the Notes, or who act on the
advice of financial institutions.
Terms defined in "Terms and Conditions of the Notes" below shall have the same meaning where used below.
1.
Risks factors relating to the Issuer and the Group
The below section presents the principal risks that could, on the date of this Prospectus, impact the business, financial
position, reputation, results or the outlook of the Group, as identified in the preparation of the Group's risk mapping,
which assesses their materiality, that is, the expected magnitude of their negative impact and their probability of
occurrence, after taking into account the risk management action plans put in place. Within each of the risk categories
described below, the risk factors that the Issuer considers to be the most material on the date of this Prospectus are
described first. Other risks of which the Group is currently not aware, or risks that as of the date of this Prospectus it does
not consider to be amongst the most material, could also negatively affect its activities.
1.1
Geopolitical and macro-economic risks
1.1.1
Competition in the short, medium and long-haul air passenger and air freight transportation market
Description of the risk
As the leading group in terms of intercontinental traffic on departure from Europe, the Group is a major global air
transport player; in 2018, the Group carried 101 million passengers between Europe and the rest of the world as well as
on intra-European routes on departure from the Group's local markets.
The air transport industry is extremely competitive. The liberalization of the European market in 1997 and the ensuing
increased competition between carriers has led to a reduction in fares.
In short and medium-haul, the Group competes with other airlines and, in particular, the low-cost carriers which have
seen very rapid growth over the last fifteen years. It also competes with alternative means of transportation like the high-
speed TGV rail network. An extension to the high-speed rail networks in Europe is likely to have a significant negative
impact on the Group's activity and financial results.
In addition, self-connect platforms like Kiwi.com or easyJet Worldwide give the ability for different point-to-point
airlines to offer connecting journeys. If these initiatives were to develop significantly and proved successful, current hub
and spoke model of hub carriers like Air France or KLM could be affected.
The competition is also very intense in long-haul, particularly on the routes between Europe and Asia, due to the
development of new rapidly-growing players like the Gulf State airlines, or on the transatlantic routes due to the growth
of the low-cost, long-haul carriers.
1

Mitigating principles and actions
The Group's different strategic plans seek to respond to these risks, particularly via the restructuring of the point-to-point
operations, the accelerated development of Transavia, cost reduction, the product move up-market and the development
of partnerships in large high-growth markets. In parallel, the Group is lobbying the authorities for a legal framework
ensuring fair competition between carriers.
Furthermore, within the framework of the Open Skies agreement between Europe and the United States, European
airlines are authorized to operate flights to the United States from any European airport. While this agreement potentially
opens the way to increased competition for Paris-CDG and Amsterdam-Schiphol, it has also enabled Air France and
KLM to expand their networks and strengthen cooperation within the SkyTeam alliance within the framework, notably,
of a transatlantic joint-venture with their partners Delta Air Lines, Inc. and Alitalia.
1.1.2
Cyclical nature of the air transportation industry
Description of the risk
Local, regional and international economic conditions can have a significant negative impact on the Group's activities
and, hence, its financial results. Periods of crisis or post-crisis with an unstable economic environment are liable to affect
demand for transportation, both for tourism and business travel. Furthermore, during such periods, the Group may have
to accept delivery of new aircraft or be unable to sell unused aircraft under acceptable financial conditions. For instance,
as a result of the global financial crisis, in 2009, passenger demand decreased by 3.5% with an average load factor of
75.6% and freight showed a full-year decline of 10.1% with an average load factor of 49.1% (source: IATA, January
2010).
Mitigating principles and actions
Air France - KLM has a balanced international geographical network enabling it to limit its exposure to risk within a
steadily-growing air transportation environment at global level.
1.1.3
Trend in the oil price
Description of the risk
The fuel bill is one of the largest cost items for airlines making oil price volatility a risk for the air transportation
industry. For the financial year ended December 31, 2018, aircraft fuel costs amounted to 4,958 million. A sharp
increase in the oil price can have a material negative impact on the profitability of airlines, particularly if the economic
environment does not enable them to adjust their pricing strategies (as an illustration, average annual oil prices increased
by more than 40% between 2016 and 2018). Similarly, a sharp decline in fuel prices is favorable for airline profitability.
However, the way in which airlines pass on a sharp fall in the fuel price in their fares is a factor of significant uncertainty.
Mitigating principles and actions
In addition to permanent efforts to reduce fuel consumption, the Group has implemented a policy of systematically
hedging the fuel price risk, as outlined in Section 1.5 - Financial market risks on page 12 of this Prospectus.
1.1.4
Terrorist attacks, threats of attack, geopolitical instability, epidemics and threats of epidemics
Description of the risk
Since 2016, the security situation resulting from terrorist attacks perpetrated in France, elsewhere in Europe and in the
Group's operational zones, together with world-wide politico-security events (Middle Eastern and African countries)
have all represented a range of security risks negatively impacting the Group. For example, the fourth quarter results of
the financial year ended December 31, 2015 were affected by the Paris terrorist attacks in November 2015. The estimated
impact in the fourth quarter revenues of the Group for the financial year ended December 31, 2015 amounted to 120
million.
The occurrence of geopolitical instability, terrorist attacks or threats of attack, closure of airspace, military action,
outbreaks of an epidemic or perception that an epidemic could occur (e.g. Influenza A) could have a negative impact on
both the Group's passenger traffic, and thus its revenues, and on the level of operating expenses.
Mitigating principles and actions
In terms of security, the Group's airlines comply with European and international regulations and submit regular reports
to the competent authorities of the measures and procedures in place.
2

The Group has no hedging in place for air transportation operating losses but is insured for the consequences of an attack
on one of its aircraft, and has subscribed war and assimilated risks insurance.
The Group has implemented a series of safety and security management processes in line with the sector's best practices.
(a)
Management of security risks
Protecting individuals and assets from assault, terrorist attacks and threatened attacks, and potential threats to their
integrity of any nature is also a major priority for the Group. The Security departments in each of Air France and KLM
establish the security policies, analyze the threats and take all the appropriate measures, particularly in relation to the
factors involved in geopolitical instability.
(b)
Management of health risks
Each airline is supported by a coordination structure responsible for prevention, crisis management, the circulation of
health advice and liaising with the national and international authorities on outbreaks of epidemics or threats of
epidemics. More recently, concerning the management of the health crises associated with the Ebola and Zika viruses, the
airlines have been supported by a dedicated coordination structure. Air France bases its food safety standards on the ISO
22000 norm. To ensure strict control over the quality of catering services, Air France notably carries out some hundred
hygiene audits and around 15,000 in-house microbiological checks every year.
The Group has also developed emergency plans and temporary adaptation procedures enabling an effective response to
diverse situations should an epidemic, geopolitical or other type of event occur. The aim of these plans is the effective
protection of passengers and staff, operational and service continuity, and the preservation of the long-term viability of
the Group's businesses. These plans are regularly adjusted to take into account the lessons learnt from events
experienced.
1.1.5
The United Kingdom's exit from the European Union (the "Brexit")
Description of the risk
Air France and KLM have originated approximately 30 000 international flights from the United Kingdom in 2019. The
United Kingdom's exit from the European Union may take place on the basis of negotiated conditions and after a
transition period ending December 31, 2020 or via a hard landing on January 31, 2020 ("hard Brexit"). On the latter
hypothesis, there may be a number of adverse consequences in terms of the economy, market access and statutory
authorizations.
Mitigating principles and actions
Air France and KLM have measures in place to ensure that a hard landing by the UK has no serious consequences for the
Group's airlines and is maintaining close, regular contact with the EU and national authorities. Based on an internal, in-
depth evaluation of the risks, even in the event of a no-deal scenario, Air France - KLM and the Group's airlines will be
able to maintain their operations and maintenance activities without their being impacted. In addition, Air France and
KLM have relatively less exposure than the other European (LCCs) or British carriers, in light of the number of
international flights originating from the United Kingdom in 2019. Customs and logistics issues will, however, require
close monitoring and contingency planning.
1.1.6
Competition and market trends in aircraft, engine and component maintenance
Description of the risk
Airframers, engine manufacturers and aircraft component manufacturers are rapidly expanding their after-sales services
to offer customers increasingly-integrated aircraft maintenance solutions. This positioning corresponds to a long-term
strategy based on leveraging intellectual property by selling licenses to maintenance providers seeking to exercise their
business activity on certain products. This competition is putting pressure on the revenue side of the maintenance
business (which represented 7% of the Group revenue for the financial year ended December 31, 2018) due to increased
competition in the sale of services and, on the cost side, owing to an aggressive Original Equipment Manufacturers
(OEMs) escalation policy. Ultimately, if it were to result in reduced competition in the aeronautics maintenance market,
this trend could have an adverse impact on airline maintenance costs.
This trend is escalating, especially with the arrival of new aircraft such as the E-jet, A350, B787, etc. The ability to
maintain balanced competitive conditions is a priority objective, both for Air France - KLM's commercial activity in
maintenance and to contain the Group's maintenance costs.
3

The Maintenance, Repair, Overhaul (MRO) Market is showing healthy growth although most of this growth is outside
the EU and especially in Asia. To maintain customer proximity and optimize the supply chain, further development of the
AFI KLM E&M supply chain is needed via the expansion of local service centers and the regional industrial footprint.
Mitigating principles and actions
Air France - KLM is working on a number of initiatives to limit the impacts inherent to this risk:
-
the involvement of the Maintenance teams in fleet renewal campaigns: procurement of licenses and the securing
of industrial cooperation with OAMs/OEMs to be able to continue to develop Air France - KLM's commercial
activity in maintenance;
-
Air France - KLM's current strong market position has the scale and scope to serve as a basis for win-win
partnerships with OEMs and other airlines;
-
developing repair solutions and the use of Used Serviceable Materials, thereby reducing the dependence on
certain OEMs;
-
negotiation of the value added contributed by licenses.
Furthermore, at the request of the airlines, IATA is maintaining a watching brief on this issue.
1.2
Risks relating to the air transportation activity
1.2.1
Risks related to airline safety
Description of the risk
Accident risk is inherent to air transportation which is why airline activities - passenger and cargo transportation, aircraft
maintenance - are regulated by a series of European regulatory provisions, transposed into French and Dutch law.
Compliance with these regulations governs whether an airline is awarded the AOC (Air Operator Certificate) which is
valid for three years.
The national Civil Aviation Authority carries out a series of checks on the proper application of these rules covering
notably the:
-
designation of a senior executive and managers responsible for the principal operational functions;
-
appropriate organization of the flight, ground, cargo and maintenance operations;
-
deployment of a Safety Management System (SMS);
-
implementation of a quality assurance system.
The materialization of this risk could have a significant negative impact on the Group's reputation and legal or financial
consequences (see note 30.2.3 of the consolidated financial statements of the Group for the year ended 31 December
2018 incorporated by reference in this Prospectus).
Mitigating principles and actions
For Air France - KLM, Flight Safety is the absolute priority. Safety is fundamental to maintaining the confidence of
customers and staff and is a day-to-day imperative which determines the Group's activity and the long-term future of the
air transportation industry.
All of the Group's businesses are subject to numerous checks and certifications, and meet extremely strict standards and
the highest level of regulations in the industry, both at European level with the European Aviation Safety Agency
(EASA), and globally with the International Air Transport Association (IATA), whose IOSA Operational Safety Audit is
a benchmark within the industry and leads to certification which must be renewed every two years. In 2018, successful
audits again took place for both airlines, renewing the certification as of 2019.
To reach the highest possible level of Flight Safety, each airline updates and reinforces its SMS which defines in concrete
terms the conditions for the implementation of its risk management system. The SMS, which is an integral part of the
organization, procedures and corporate culture, is supported by a commitment made at the highest level of management,
and by training and awareness-raising programs for all staff.
This risk is covered by the aviation insurance policy.
4

1.2.2
Risks related to the environment
1.2.2.1 Acceptability of air transportation growth
Description of the risk
Airlines accommodate their customers' increased need for mobility, while improving their own energy efficiency and
maintaining noise hindrance at an acceptable level for those living near airports. There is increasing public pressure, at
both local and global level, concerning flight-related environmental impacts from the aviation industry.
In this respect, the actions implemented by Air France - KLM to limit and reduce its environmental impacts directly
influence its ability to manage and develop its activities ("license to grow") in all regions of the world and over the long-
term.
The air transport industry is subject to a significant level of environmental legislation governing areas such as the
exposure of people to aircraft noise and gas emissions, air quality, the treatment of waste products, and the introduction
of taxes on airlines and obligations to ensure the compliance of their operations. As an example, from 2020, airplane
tickets are likely to be taxed from 1.50 to 18 on all flights departing from France (and not to those arriving), except
connecting flights. This tax will apply to all airlines and will be 1.50 in eco-class for domestic and intra-European
flights, 9 for business class flights, 3 for non-EU eco-class flights and 18 for business class flights. This tax will raise
funds for investments in greener transport infrastructure, including rail.
Such legislation may have a significant negative impact on the Group's operations and growth which could be reflected
in more substantial costs and could lead to competitive distortions between airlines when applied solely to a specific
geographical area.
Mitigating principles and actions
The airline industry is amongst the sectors that are mobilizing the most to reduce their carbon footprints and was the first
sector to commit to collectively reducing its CO2 emissions. As early as 2009, the International Air Transport
Association (IATA) set an ambitious global commitment to stabilizing the CO2 emissions from international aviation at
the 2020 level (Carbon Neutral Growth as of 2020), and to reducing CO2 emissions by 50% in 2050 relative to their
2005 level.
Air France - KLM is a member of the representative associations for the airline industry (IATA, ATAG, A4E, FNAM)
which engage in lobbying activities directed at the relevant national, European and international authorities and bodies
(ICAO, European Union, supervisory Ministries in France and the Netherlands) to promote effective solutions for the
environment, but also to ensure that the measures which are put in place do not lead to any distortion in competition
between the air transportation players. For example, Air France - KLM has always supported the implementation of a
market-based mechanism for carbon emissions considering that, provided it is equitable, such a system is more effective
from an environmental standpoint than a simple tax.
Regular discussion meetings take place with residents' associations, local elected representatives and the public
authorities to address all the matters relating to the effects of air transportation activity around airports.
1.2.2.2 Climate change
Description of the risk
To meet the requirements relating to carbon budget and low-carbon strategy of Article 173 III of Act No. 2015-992 of
August 17, 2015 relating to the Energy Transition for Green Growth, the Group takes into account the financial risks
related to the effects of climate change.
Climate change will lead to more frequent extreme weather events that will have a greater or lesser impact on all world
regions. Air operations depend on meteorological conditions and may be impacted by other natural phenomena
(earthquakes, volcanic eruptions, floods, etc.) which may lead to operational disruption such as flight cancellations or
delays and diversions. As a general rule, the duration of such adverse natural events tends to be short and their
geographical range limited but they may require the temporary closure of an airport or airspace, such as the volcanic
eruption of Eyjafjallajökull volcano in Island in 2010, where nearly 100,000 flights were cancelled in eleven European
countries, leaving 10 million passengers on the ground. They may have a significant operational and financial
repercussions for the Group's activity given the regulations requiring the Company to assist passengers in the European
Union territory (e.g. passenger repatriation and accommodation).
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Mitigating principles and actions
To adapt to the already-visible consequences of climate change such as more frequent extreme weather events, Air
France - KLM has a policy in place to ensure safe operational and passenger handling conditions, and regularly conducts
comprehensive risk analyses to optimize these arrangements.
Through its international operations, Air France - KLM is present in all continents and operates in different weather
conditions, including the most extreme. It regularly reviews the operational risks to improve the existing procedures. The
operation of a network balanced between the different continents and the flexibility related to the composition of the fleet
enable the financial consequences of these impacts to be minimized.
Within this context, Air France - KLM lobbies the French and European authorities, either directly or through
representative bodies, to develop robust crisis management tools.
With its partners, the Group has deployed procedures aimed at guaranteeing its services as far as possible and also
minimizing the consequences of these situations for its customers. In such circumstances, the Group deploys commercial
measures to enable passengers to defer their travel if they so wish, or change their destination. The Group has no hedging
in place for operating losses incurred due to such events.
The Group implements measures to mitigate the impact of climate change through a low-carbon strategy. The use of
sustainable fuels is a promising avenue towards reducing CO2 emissions from aviation and a key element in achieving
Air France - KLM's CO2 emission reduction targets as well as those of the aviation industry as a whole.
1.2.2.3 Carbon credit risk
Description of the risk
As an air operator, the Group is an issuer of carbon dioxide, meaning that it has, since 2012, been subject to the European
Union emission quota system (EU-ETS or European Union Emission Trading Scheme). It is thus required to offset its
emissions by purchasing carbon quotas in the financial markets. For the financial year ended December 31, 2018, the
Group's greenhouse gas emissions amounted to 27,571 ktons. In addition, for the financial year ended December 31,
2018, Air France, KLM, Transavia, HOP! and KLM Cityhopper purchased emission allowances equivalent to 3,081,906
tons of CO2.
As of 2021, the Group will be subject to the global carbon offsetting mechanism, adopted by the ICAO in October 2016.
The ICAO resolution stipulates that "CORSIA is to be the market-based measure applying to CO2 emissions from
international aviation", thereby avoiding the imposition of overlapping national and regional mechanisms. Air France -
KLM and the other IATA airlines are lobbying for the CORSIA provisions to replace the EU-ETS as of 2021 for the
scope of international flights.
Mitigating principles and actions
At financial level, the Group has implemented a carbon credit risk hedging strategy in the form of forward purchases, a
strategy whose components are approved by the Risk Management Committee.
At operational level, the Group is also committed to exploring all avenues potentially reducing its fuel consumption and
carbon emissions:
-
at its own initiative: modernization of the fleet and engines, improved fuel management, fuel savings plan,
reduction in weight carried, improvement in operational procedures; and
-
in cooperation with the authorities: SESAR project (Single European Sky, optimization of air traffic control),
improvement in operational procedures.
Furthermore, the Group supports and calls for research into the development and use of new more-environmentally-
friendly fuels (biofuels).
The Group also uses an internal carbon price (price range) when taking a decision on whether to proceed with
investments and projects, to factor the carbon risk into its decision-making scenarios.
(For more details on Risks related to the environment see Section 1.2 - Risks relating to the air transportation activity of
this Prospectus).
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