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Investing.com - Morgan Stanley initiated coverage on Air France-KLM (EPA:AF) (OTC:AFLYY) with an Equalweight rating and a price target of EUR11.30 on Wednesday.
The investment bank cited a mixed outlook for the airline group, noting progress in restructuring efforts, particularly KLM’s Back on Track program, while Air France has already streamlined its operations. Strong premium long-haul and transatlantic demand are supporting revenues, with free cash flow expected to improve as state-aid repayments decline.
Morgan Stanley highlighted concerns about Air France-KLM’s stretched balance sheet, with high gearing once hybrid instruments are included, limiting financial flexibility compared to industry peers. Additional cost pressures from labor inflation, Schiphol airport tariffs, and strike disruptions are weighing on performance.
For fiscal year 2025, Morgan Stanley forecasts a 6% EBIT margin for Air France-KLM, in line with consensus, though it noted potential downside risks in the third quarter of 2025. The bank’s models for fiscal years 2026 and 2027 project EBIT 3% below consensus due to persistent cost headwinds.
While Air France-KLM management targets an EBIT margin above 8% by 2028, supported by €2 billion in structural improvements, Morgan Stanley expressed uncertainty about execution challenges, inflation, and airport charges that could impact delivery of these goals.
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