National airline KLM breached the terms of its coronavirus funding deal by offering pilots a two-stage pay rise between now and the New Year.

The airline received €3.4 billion in loans and guarantees – the largest support package for a Dutch company – on condition that it managed to cut its ‘adjustable costs’ by 15% between 2020 and 2025.

The proposed pay deal, worth 1.5% in August and another 1.5% from January, would increase its expenses in violation of the agreement, KLM’s state agent Jeroen Kremers told MPs in a briefing on Monday.

Two weeks ago the airline announced a 5% pay rise for all staff, backdated to March, as it grapples with a staffing and recruitment shortage that has contributed to delays and long queues at Schiphol airport.

Kremers said the across-the-board pay rise would also breach the terms of its pandemic support package.

The pay rise for pilots still has to be approved by the Dutch airline pilots’ association VNV.

Tax loophole

Kremers also criticised KLM for other failures, including not closing a loophole that allows pilots who live abroad to avoid paying tax in the Netherlands.

Air France-KLM last week announced it planned to issue an extra €2.3 billion worth of shares to enable it to pay off its government loans faster. The Dutch cabinet has indicated it wants to buy €220 million of the shares, but faces criticism because around 75% of the money would be repaid to the French government.

The airline’s share price has more than halved in the last week from €4.35 to €1.80. In February 2020, just before the lockdowns in Europe began, Air France-KLM shares were worth almost €10.