We Lower Air France-KLM’s Fair Value Estimate to Account for the Rights Issue

We reduce Air France-KLM’s fair value estimate to EUR 3.70, from EUR 5.20, as we incorporate the EUR 2.26 billion rights issue into our model. The reduction in our fair value is entirely attributable to the deeply discounted subscription price of EUR 1.17 per share, which compares with our previous forecast of a rights issue done at EUR 2.50. We also change our uncertainty rating to very high from extreme. We believe there is still lots of work to be done in terms of restoring the balance sheet, but at least some level of certainty is achieved with the announcement. Shares appear attractive, but we caution about the wide range of outcomes as a result of group indebtedness and the uncertainty around the recovery in air traffic demand. We prefer the low-cost carriers Ryanair, Wizz Air, and EasyJet, which are all trading at attractive discounts with relatively lower risk.