Is the support of the Dutch government for KLM right?

KLM redactie 27-4-2020

Last Friday, the Dutch government once again organized a press conference. However, this time it was not about new corona measures or the relaxation of these measures, but about supporting the Dutch airline company KLM. Like many companies, KLM got hit hard by the corona crisis. More than 90 percent of the airplanes does not fly anymore but still has to be maintained. This is one of many examples of costs that do continue despite the crisis. Minister of Finance Wopke Hoekstra talked about necessary support with a range of 2 till 4 billion euros. This will be done by giving loans to KLM. Just like the France government that supported Air France (the French part of Air France – KLM) with 7 billion euros, the Dutch government hopes to guide KLM through this crisis. These large amounts also got accompanying questions. Is the support of the Dutch government too large and why does KLM get this rather special support compared to other companies?

Of course, KLM is not the only company that suffers due to these times. The Dutch government already gave billions of support to Dutch companies. Although many other companies would like to see more support, this special support for KLM can be justified.

KLM is one of the large providers of work in the Dutch economy with the amount of somewhere around 114.000 jobs. If one would look at the alternative where KLM fails, one would also look at a situation with large costs. Employees of KLM would most of all have to receive unemployment benefits for example. Furthermore, the disposable income of these people will also decrease which causes less spending. Moreover, according to Hoekstra, locational advantages, tourism and sectors that benefit from good geographical accessibility will all suffer from KLM falling. On top of that, the Dutch government has bought 14% of the shares of Air France–KLM last year. It did so to protect the public interest of the company. The support to KLM would also be to protect this interest.

The support does not come without requirements. There can be no dividends, no bonuses and no profit-sharing for the employees be distributed. Furthermore, there will be obligations for the distribution of profit, employment conditions and the sustainability of the company.

Of course, there is still a lot of uncertainty about how things will work out. There is a large difference between 2 and 4 billion euros, so how large will the support actually be? How effective will the support be to maintain the strong brand and competitive position of KLM? Although there are still a lot of questions to be answered, the Dutch government has good reasons to take action.

By: Jesse Derks