We set our target price at EUR10.35/share. We base our valuation methodology on a 2025 target EV/EBITDA multiple as we feel DCF disregards near-term risks due to a number of long-term variables that significantly affect the valuation of the company. We use adjusted EV (including perpetual bond) and adjusted EBITDA. We use a 2.8x target multiple in line with the current consensus multiple (and compared to the historical average of c.4.6x) which we believe is appropriate given the uncertainty around KLM turnaround and French aviation tax. 

We assign a High Risk rating due to share price volatility. We highlight the following risks to our target price:  

Downside Risks:  
1) Typical airline operating risks: cyclicality, overcapacity, fuel prices, labour strength, safety, war/terrorism and sensitivity of travel demand to external shocks.  
2) Threat of strikes by pilot and/or cabin crew ahead of pay negotiations.  
3) Potential delays in getting the new strategy approved by internal stakeholders (board, employees, government and unions).  

Upside Risks:
1) Less competitive pressure on Asian routes.
2) Accelerated KLM turnaround through further self-help and/or additional cost savings at AF.
3) Delay/cancellation of French aviation taxes.