Air France-KLM plans to sell about 2.26 billion euros ($2.4 billion) of new shares to shore up its balance sheet and repay a chunk of the state aid that helped the carrier survive the Covid-19 crisis.

The proceeds of the rights issue will be used to reimburse about 1.7 billion euros of subordinate bonds issued in April last year and held by the French government, and to further reduce debt, the Franco-Dutch airline said Tuesday. The subscription period is set from May 27 to June 9.

“We want to be in a position to seize any opportunity in a changing aviation sector and to be able to accelerate our environmental commitments,” Chief Executive Officer Ben Smith said in a statement.

The transaction will bring Air France-KLM closer to completing a targeted 4 billion-euro capital increase as it seeks to pay down borrowings in line with European Union requirements on state funding, which currently bar the airline from participating in the consolidation of an industry roiled by the pandemic.

Shares of Air France-KLM traded 6% lower at 9:24 a.m. in Paris, the steepest decline since March 7, paring gains this year to 5.4%.

Air France-KLM has been linked to one of two bidding groups for Italia Trasporto Aereo, the successor to failed Italian arlines Alitalia SpA. Both submitted proposals ahead of a deadline Monday night.

One group is led by US-based Certares Management LLC, a travel-focused investment firm that may also have support from Air France-KLM investor Delta Air Lines Inc. A rival bid from Mediterranean Shipping Company SA is backed by German national carrier Deutsche Lufthansa AG.

Earlier this week, Air France-KLM said it was in talks with Apollo Global Management Inc. for a 500 million-euro capital injection into an Air France unit affiliate that owns a pool of spare jetliner engines used in its maintenance operations.

Government Stakes

The share-sale plan and improved earnings following the lifting of pandemic restrictions will both help to strengthen the balance sheet, enabling Air-France-KLM to further repay French aid in coming quarters, it said. That will also reduce finance costs.

Like other European airlines, the group has switched to expansion mode as the removal of Covid travel curbs triggers a surge in bookings. At the same time, carriers remain wary of prospects beyond the summer as inflationary pressures add to costs and weigh on consumer spending.

France, which owns a 28.6% stake, plans to participate in the rights issue to keep its shareholding unchanged, the airline said. The Dutch government also wants to retain its 9.3% stake, provided it gets approval from the country’s parliament on time.

Shipping giant CMA CGM SA aims to invest as much as 400 million euros in the transaction to take a stake of as much as 9% of the company as part of an air-cargo alliance announced earlier this month.

China Eastern Airlines Corp. and Delta will see their stakes—of 9.6% and 5.8%, respectively—in the Franco-Dutch carrier about halved as they have committed to participate in the rights issue on a cash neutral basis. They will sell some of their subscription rights to CMA CGM.