The Franco-Dutch airline Air France - KLM has not been having an easy time of it during the past couple of years. Strikes on the French side have cost millions and cargo results until this year were not at all what they should have been. The questions arise again as to whether AF-KL have a future together! We touched on this subject some time ago and were met with many indignant comments that such a move could never come about. Is that so today?
Dutch government has concerns on Group’s future
The imbalance in the AF-KL management structure is still very apparent.
Since joining forces back in 2004, there has never been a Dutch CEO in charge. KLM managers may feel that they are playing second fiddle for the past fourteen years. Then there is the matter of the shareholders. There is no Dutch government shareholding in the company whereas in the case of Air France the French government has a 14.3% share and is the largest shareholder in the company.
There is said to be growing unrest within Dutch political circles as to the future of the Franco - Dutch carrier. At the same time the Dutch government is denying that there are any plans or discussions for them to take an equity stake in AF-KL.
But - they (the Dutch) are not happy with an eroding situation which shows no signs of getting better.
On the contrary! Fifteen one-day strikes already this year by Air France personnel with radical French unions seemingly not caring about what the future may bring if this continues. The strikes which started in February are said to have already created a negative effect in 2018 for the company somewhere in the region of €300 million.
Then AF CEO Jean-Marc Janaillac throwing in the towel and resigning because the unions won’t meet his suggestions. He himself has openly stated that the French carrier needs a “profound transformation” and this is the worst crisis in the airline’s long history.
Profit and loss imbalance
Who is carrying the can on the financial (results) side?
It certainly looks like KLM, the smaller brother, is the one who shows good results compared to Air France. KLM posted a €60 million operating profit for the first quarter of this year, whereas Air France comes out with a €178 million operating loss. This is certainly not the first time that results are so imbalanced.
A Bloomberg report recently stated that KLM is pushing hard for a radical change in the group management structure whereby KLM can gain more control and influence on strategical moves. If not - is it then too late?
Where does this leave KLM?
The KLM management is so far putting on a good face, but the pot is boiling in the backyard. KLM CEO Pieter Elbers who is surely just as frustrated as the managers under him, is so far showing confidence to the outside world. Since Janaillac said he’s quitting, the decision was made for an interim management structure with AF CEO Franck Terner and KLM’s Pieter Elbers sharing the responsibility. This, until a new CEO is appointed. And, he or she will most probably come from the Air France side. Elbers is driving for stability and better working cooperation. But, is this anymore possible?
Back to square one?
Could it be that the Dutch government is holding back on making any moves on possible equity shares because it is not convinced that it will work in the long run? Many years of loss making as a joint venture where only the one side shows good results, is surely painful.
Splitting up is always a painful affair and needs to be well thought out as where would such a move, if it were to become reality, leave KLM in today’s aviation market. The Air France - KLM transatlantic pact being worked upon with Delta Air Lines and Virgin Atlantic could well become a zero number in such a scenario. AF-KL have recently made it public that they intend to take a 31% share in Virgin Atlantic, a carrier which is already 49% owned by Delta. Tricky!
The French government is also getting nervous and according to information in the French medium Les Echos, is seriously looking at pulling out with their 14.3% share and selling it to the French Accor hotel chain. Is this also something which KLM would support?
Is it a wise move then to consider “going it on your own” before the whole thing “goes belly-up?”
More hard months ahead!
John Mc Donagh
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