Why Are We Saving KLM?

Marthe writes*

It has long been argued that airline KLM and Amsterdam airport Schiphol are ‘the engine of the Dutch economy’. These companies have been favored in policymaking, but there is no data available that shows their impact on the Dutch economy and they are among the most polluting organizations in the country. KLM has received much more COVID support than other businesses, €5,1 billion, of which €1,7 billion supported wages and €3,4 billion represented ‘loans’ (as of now). The loans come from two places: €1 billion comes from the government (i.e., taxpayers) and will likely be gifted to KLM; €2,4 billion comes from banks. The government guarantees 90 percent of the bank loans, again, with taxpayer funds.

The five conditions of these loans are vague and seem to contradict the government’s climate goals. First of all, KLM employees will receive a lower salary until 2025; putting relatively more of the burden on the ‘normal worker’ instead of bosses. On top of this, KLM employs over 350 pilots and 330 cabin crew who live in countries with lower taxes than in the Netherlands; KLM’s “free commute policy” arguably facilitates tax evasion. Second, as long as KLM receives financial support, no bonuses and dividends will be paid; the big majority of these usually go (untaxed, as they are bonuses) to the inner elites with high salaries. Third, KLM will reduce the number of night flights from 32,000 to 25,000, but no deadline is mentioned. Critics assume that flights can be increased again in the future. Fourth, KLM should reduce CO2 emissions by 50 percent per passenger kilometre by 2030, but ground emissions are not included. And fifth, in 2030, 14 percent of KLM’s fuel will be sustainable. The last two conditions seem quite unambitious to me.

Politicians have thus far been incapable of producing convincing arguments as to why KLM is being favored. One repeated argument is that the Dutch aviation sector supports jobs: politicians keep repeating 370.000 jobs. Funnily enough, the study supporting this figure includes 55,000 jobs that do not belong in a ‘pure’ macroeconomic analysis and counts 173,800 jobs twice. Even if the aviation sector was responsible for a lot of jobs, there is a general job surplus in the country and research shows that employees from this sector can be retrained relatively quickly. On top of this, working conditions and wages at KLM are terrible, as witnessed by recent strikes at KLM and Schiphol.

Another argument is that KLM helps Schiphol stay big and compete with other airports. But when airports outbid each other with more development space, the absolute number of flights will increase too. More destinations, more options, more competition, lower prices which, from a climate point of view is catastrophic. CE Delft found that Schiphol’s current growth plans will cost the Netherlands €2.3 billion to €3.1 billion over the next 100 years.

It is important to note that while KLM — besides adding less to the economy than claimed and costing taxpayers money — also has negative equity of almost €4 billion and €34 billion in debt. In 2021, interest payments cost over €1 billion. While these are not included in the operating results, thus easily ignorable by policymakers, it remains unclear why the government seems so keen on saving KLM.

Bottom line: It is unclear as to why the government goes above and beyond to save KLM, which loses money, is not significant for the economy, and hinders progress on climate goals.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

2 thoughts on “Why Are We Saving KLM?”

  1. Hi Marthe, I very much enjoyed reading your blog post! Your blog post made it very clear that the arguments mentioned by politicians for the support of KLM don’t make sense. These arguments are mainly economic and I think that the reasons for the government wanting to save KLM are partially beyond that. I think that KLM is seen as an object of national pride by many. The airline has a long history, as the oldest operating airline worldwide, and large international recognition. In addition, KLM has the royal predicate and therefore is connect to the Dutch monarchy and state. Therefore, Klm is easily associated with the Netherlands and serves in a way as a business card for the country. Having a large airline can contribute to a positive image of the country, which is especially important for investors. Additionally, the interdepence of KLM and Schiphol is a very important reason for the government to keep supporting the airline. 48% of the passengers making use of Schiphol are KLM passengers, making up the largest part of the passengers. Therefore, KLM is very important for Schiphol. The Dutch state owns almost 70% of the shares of Schiphol Group and therefore is important to them. In order to maintain the success of Schiphol, the government also has to maintain KLM. I think that these are two important reasons why the government is so keen on saving KLM even though other arguments by politicians don’t hold up and the contradiction with the environmental goals of the government. I am curious to hear about the findings of your research paper!

  2. Hey Marthe! I enjoyed reading your post. I was unaware of KLM’s loans. Although looking a bit at the European picture, KLM does not seem to be the only airline to be aided by the government. The Lufthansa Group experienced a 9 BILLION bailout, funded entirely by the German government. Furthermore, Alitalia was fully bought by the Italian government during the COVID crisis as well.
    Moreover, Iberia and Vueling were bailed out (1 billion euros) by the Spanish government. Also, Spain bailed out before the COVID crisis a reasonably small airline called Plus Ultra, which caused outrage in Spain.
    The list could go on and on, which makes your project fascinating. I am thrilled to read about your findings, and see if they can be generalized for Spain, Germany and Italy as well.

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