Air France-KLM plans $12bn fleet renewal

Air France-KLM will renew its fleet by placing a $12bn order for 25 aircraft each from Airbus and Boeing in the first joint purchase by Europe’s second-largest airline by sales.

The Franco-Dutch group’s board has approved the replacement of older long-haul aeroplanes with 25 Airbus A350s and 25 Boeing 787s in order to reduce high fuel costs and emissions.

The 50 firm orders, and a further 60 options, still need to be finalised with manufacturers but contracts are expected “before the end of the year”, Air France-KLM said on Friday.

The deal bears out assurances by a senior French minister that the group would be allowed to exercise independence when choosing where to place the order, following pressure this summer from French lawmakers to choose Europe’s Airbus over Boeing of the US.

Nevertheless it will see Airbus receive slightly more orders than its US rival, which disclosed that it was chosen for 25 of the 60 further options.

“This is a pretty positive deal for Boeing as there was some pressure for it all to go to Airbus,” one analyst noted.

While the Airbus 350-900 order will be equipped with Rolls-Royce Trent XWB engines, the only type available for the aircraft, Air France-KLM said the selection of engines for the Boeing 787-9 “will be made later”. This will put pressure on Rolls-Royce to allow Air France-KLM’s own engineering and maintenance division to maintain the UK company’s engines if it wants to win the order for the Boeing aircraft.

“We continue to talk to Air France-KLM about maintenance details and we’re having open discussions with them,” Rolls-Royce said.

Air France-KLM made its choice following “a detailed assessment” of each aircraft, “including their energy and environmental performance”, said Pierre-Henri Gourgeon, group chief executive.

In June, Mr Gourgeon was asked by a French minister to clarify what was happening with the order after a campaign by politicians calling on the group to favour Toulouse-based Airbus.

François Baroin, the then French budget minister, intervened to stress that the government and the company would abide by global free trade rules. Nevertheless he added that the French government, which is the airline’s biggest single shareholder with a stake of 15.7 per cent, would remain “attentive” to the outcome.

The news comes as the group implements a fresh round of cost cuts amid stalling economic growth in Europe and the US, soaring fuel costs and a plunge in its share price.

The new aircraft will reduce fuel consumption by more than 15 per cent and contribute to a “significant” reduction in noise and gas emissions, Air France-KLM said, adding that the new orders will be financed through cash flow generated from group operations.

However, as the first aircraft of the order will enter service in 2016, there will be no short-term effect on fuel costs.

Shares in Air France-KLM rose more than 4 per cent to €6.34.