Air France-KLM shares rise after Etihad deal

What's Up: Air France shares ticked up yesterday on the news that Europe's biggest airline had signed a major strategic partnership with Etihad Airways.

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Air France shares held steady yesterday on the news that Europe's biggest airline had signed a major strategic partnership with Etihad Airways.

Air France-KLM rose as much as 2.4 per cent and was trading 1.5 per cent higher at €5.49 at midday in Paris. The shares in late trading were €5.37, virtually unchanged.

The news is a further fillip to the airline group's performance, which is slowly rebounding as a result of a major turnaround programme. When it posted its second quarter results in July, Air France's operating loss narrowed to €66 million from €145m a year earlier on the strength of its €2 billion savings plan, dubbed Transformation 2015.

At the time, Air France-KLM closed almost 73 cents or 19 per cent higher at €4.62 in Paris, where the company is based, the sharpest gain since the group was set up after a merger in 2004.

Under the plan, Air France-KLM said last month it would eliminate more than 5,000 jobs as the chief executive, Jean-Cyril Spinetta, seeks the savings he says are needed to guarantee survival.

Air France aims to post an operating profit higher than the €195m achieved in the second half last year and on that basis should reduce net debt by the end of the year. "These are interesting results, because they've halved their operating loss when everyone thought it would be in line with last year," said Yan Derocles, an analyst at Oddo Securities in Paris with a "buy" recommendation on the stock. "The debt picture is also evolving in a positive way."

However, Capa, the Australian-based aviation analyst, added a note of caution to July's positive results. "Air France-KLM has made some decent progress on implementing its turnaround plan," it said.

"The company recorded a nice reduction in operating losses during the first half of financial year 2012, and the group expects to vacate negative territory and generate an operating result above the €195m it realised in the second half of 2011. However, it is too early to declare victory and long-term sustainability."