Air France KLM
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Air France KLM, which is sometimes known air France is an airline holding industry that is assimilated under French law. It has its HQs in Charles Gaulle Airport in Paris. Further, this firm has its offices in Montreal, Paris, and Netherland. The company is a product of a merger that happened in 2004 on-air France and KLM. They were both parties of the Sky Team airline association. For the air France KLM, it managed to transport 87.3 million passengers as of 2014. It is an aviation industry that was founded in 2004.
Background on the company
Air France KLM was shaped on May 5th, 2004, by equally settled mergers that happened between air France and Netherlands, which is KLM. Because of this deal, French government shared that ere in the company reduced from 54.4% up to 44%. Further, it shares abridged to 25% and then shifted to 17.6%. During time of merging, which happened in May 2004 when air France and KLM available flight to over 225 termini across internationally. Further, in October 2005, air France consignment and the KLM brought together their profitable actions where they currently operate the organization internationally but from the Netherlands. In 2007, air France-KLM was listed as top bidder, where they got favored by the board of Alitalia. In 2008, Air France –KLM emerged as the largest airline firm based on working revenues and happened to most considerable internationally when considering international traveler kilometers. In August 2011, the company was listed as one of the world’s ten harmless carriers. In 2013 December, the company ended its subordinate city jet to the highest bidder who was intro Aviation. From there in august 2018, Benjamin Smith was announced as the new CEO by the board of management. On February 26th, 2019, it was published that the Dutch government purchased 12.68% of shares of Air France-KLM.
Competitors
Air France KLM company faced many competitors from different companies that offer the same services. Its top competitors include the southwest carriers, which is leading American airlines and happens to be the world’s leading low-cost hauler. It operates in 101 destinations, and its headquarters are in Dallas in the United States. It has generated a revenue of US$21.965 billion as of 2018. Another competitor of air France KLM is American airlines, which is located in Fort Worth in Texas, and statistics show that it is the largest airline when measuring its size by fleet revenue passengers as well as scheduled passengers. It is reported to operate on 6,800 flights per day in more than 50 nations. This offers strong competition to Air France KLM, and it has employed over 130,000 workers. Delta airlines is another competitor to Air France-KLM, which is a major United States airline and legacy carrier with its HQs in Atlanta, Georgia. It operates approximately 5400 fights every day and serves 325 destinations in six continents covering 52 nations. As per 2019, it generated $47.007 billion as revenue with 86,564 employees in 2018. Moreover, the international airline’s group is a great competitor of Air France-KLM, which is an Anglo- Spanish international carrier and has its itemized office in Madrid. In 2018, it generated 24.41 billion euros with over 64 000 employees, and Qatar airways own it.
Ownership
As per 2019, the major shareholders for the air France-KLM Company were 14.3% for the French state, China Eastern airlines owning 8.8% shares, Dutch government increased their shares in the company to 14.3%. Further delta airlines own 8.8% with employee’s 3.9% and treasury stock holding 0.3%. Its HQ is now currently located in the Roissypole complex at Charles Gaulle airfield in Paris. On the other hand, the wholly possessed subsidiaries of air France-KLM include Air France and the KLM. Under the company, it owns cargo, air France hop as well as Transavia France.
Consequently, KLM possesses the KLM cargo, city hopper, Asia, as well as Martinair and Transavia. Before January 2017, the company owned cobalt Ground answers, which is the third main ground management business. This corporation was shaped in April 2009 through merges of two ground service companies of KLM in the United Kingdom and Air France.
Capital approach
Air France-KLM company uses various capital approaches to cater to its expenditures and bills. The company benefits from the access to export credit, which they use of aircraft financing. The company uses equity financing after its financial needs. It involves selling the company’s stock to investors to raise the required capital. In return for the investment, the shareholders then gain an ownership interest in air France-KLM. The firm’s equity is measured through subtraction of liabilities from asset values. Additionally, the company uses debt financing, which involves raising money for the occupied capital through the vending of bills, and notes to persons and institutional depositors. On the return, these people become creditors to air France-KLM, where later they receive a promise of getting interests on their debts.
In some cases, the company uses third-party financing, which entails engine manufactures and aircraft manufacturers, and it is a form of debt financing. It also uses leasing, which is a form of debt financing used by Air France- KLM. In some cases, there is the use of funding internal, which involves retained earning equity. There is a generation of finance through prepaid tickets.
GAAP
Air France-KLM company falls under the principle of consistency. The accountants and auditors apply the same standards in accruing out the reporting process from one period to another, which confirms financial comparability between periods. Air France-KLM is expected to adequately provide an expounding and explaining the reasons behind any changes in the footnotes to financial statements. They use international accounting standards which are used in giving financial report.
Based on the management report and auditors report, I can say that the company has fully complied with the principle of consistency since 2014 since it uses the same accounting standards, which falls under the principle of consistency in generating the management reports and auditors reports.
In the case where the company was using IFRS instead of GAAP, then there would be some differences. The first difference is that IFRS is always principle-based, while GAAP is rule-based. For IFRS, the guidelines would offer less overall details and leaves less many rooms for interpretation and demands length disclosure on the financial statements when compared to GAAP. Another difference between the two entails their treatment of inventory. IFRS has used the LIFO inventory accounting technique. Still, for GAAP, it does not allow any inventory reversals, which is not the case with IFRS that permits inventory reversals under particular conditions.
Auditors
Air France- KLM uses statutory auditors whose primary object is giving an objective opinion on regularity and fairness of financial statement after carrying out the procedures which are required by the international auditing standards and those demanded by the nation’s regulations. They also perform the role of processing the annual statutory audit of the firm’s financial accounts and offer studied opinions concerning whether they are an impartial and fair reflection of the firm’s economic levels. During the year-end meeting, which happened on December 31st, 2019, the statutory auditors presented their opinion during shareholders meetings. They stated that they had audited all the supplementary consolidated financial statements for the company for the year ended December 31st 2019. The consolidated financial statement offers a fair and true display of the company’s opinion of assets and liabilities. Additionally, they give the financial position of AIR France- KLM during December 31st 2019, and provide consequences of the processes for that year. All these are done based on global financial reportage standards, which are accepted by the EU. The audits are done according to professional standards that are applicable in France. Additionally, the audits also comply with the independence rules that were applicable from January 2019 and the date of issuing the report.
Annual report
The annual report of Air France KLM presented by statutory auditors did an adequate job of conveying the financial position of the merged company. It also offers information concerning the results of the company’s operations and prospects of air France KLM. Additionally, it gives relevant and reliable data for allowing investors to make a reasonable investment decision. Annual reports presented by statutory audits are useful in satisfying their significant roles.
Annual reports of Air France KLM has its strengths and weaknesses. Its power is that it helps in measuring the company’s progress, monitoring of the company’s growth, and offering performance evaluation as well as tracking and addressing issues in Air France KLM. For example, the annual report as of December 2019 assisted in monitoring the operating procedures that happen in the company. It also allows the managers to use reports for reviewing and corrective actions that are not efficient. Another strength of the annual report is that it supplies the upper management with crucial information for making decisions. Additionally, the report offers insights into the employee’s attitudes and motivations. This helps air France KLM in evaluating different ways of rewarding or motivating the employees to assist in achieving the company’s set objectives and goals.
Annual reports offer employees performance evaluation in determining how they work and how effective they can be. It is also used in the assessment of investment proposals and checking on different ways of achieving the company’s investment goals. One of the greatest strength of the annual report of air France KLM can provide the management and investors with information which is required for making critically essential decisions concerning investments and running of the organization effectively. The reports give strengths, weaknesses, and offer different ways of using the information for benefiting the company.
The weakness of the annual report
Besides the strengths of annual reports for the air France KLM, they also have weaknesses. The weakness is that they are not in-person interactions meaning they do not permit opportunities for asking questions and offering feedback in the cases where the data used in providing annual reports, then it can lead to problems. There are chances of information used being biased. Another weakness of the story is that the news is time-consuming to create.
Further, they are also expensive to write and compose, which costs air France KLM a fortune to pay statutory auditors to perform their role effectively. Consequently, financial statements that are used in the annual reports seem to address different areas of air France KLM Company which are accessible to quantity. There is ignorance of the qualitative aspect, which offers many benefits. Lastly, during the formulation of the annual financial report, they require that analysis make a data comparison from different companies in the same industry for comparing and contrasting the ratios in annual reports. It is a weakness for the yearly report writing and evaluation.
Country’s business environment
Air France KLM Company is located in Paris, a country that has a favorable business environment because; it has a large market with over 65 million consumers. It also has a high-quality workforce. Research shows that Paris has a positive business environment. When it comes to elements like research tax credit when evaluating different companies, France is said it has a favorable business environment. In 2015, research indicates that research tax credit totaled to0 $500 billion. Further, in France, there are other additional financial services for creating an excellent environment for Paris. In France, different acts have been signed for running the business, which has helped different countries save a lot of money. France acts have also signed tax conventions for over 100 nations to eliminate double taxation.