During the past weeks there has been quite some turmoil on the management level at Air France - KLM. It seemingly flared up as the group’s new CEO, Benjamin Smith, who joined AF-KL last year from Air Canada, indicated that there must be more radical changes in the structure. It was then strongly rumoured that part of this restructuring was a move to get rid of KLM’s President & CEO, Pieter Elbers.
New CEO wants more control over KLM
Mr Elbers has successfully steered KLM for the past years and some say that his relationship with the new group CEO has not been very good. Mr Smith took over the helm last year has in the meantime been busy with restructuring Air France, reaching an accord with its unions and endeavoring to bring the French carrier back black figures - something his past predecessors failed miserably at.
One could quite easily forget that KLM is basically owned by Air France and is not part of a joint-venture set-up or cooperation system. Here it seems, Elbers and Smith did not see eye-to-eye on the Canadian’s moves to further integrate and have greater control over KLM.
It’s no secret that Air France has been bleeding financially for some years and that KLM, despite some setbacks, has been performing quite well. Last year there was unrest within some KLM departments because managers were claiming that the carrier was subsidizing Air France losses. The marriage has not been an easy one, but there is no chance of a divorce from either side.
The Netherlands stands behind Elbers
It is not really clear where the rumours started that Elbers was on the way out.
However, it caused uproar in the Netherlands as the KLM CEO is well liked by his staff and the Dutch public. Reports state that 25,000 signatures were collected from KLM staff, including unions, pilots, engineers and ground staff, claiming that if Mr Elbers were pushed out or put on the back burner, that there would be considerable unrest within the airline. KLM managers are said to have written to the AF-KL Board that if Elbers is pushed out, then they can expect industrial action on behalf of KLM employees. There was also considerable involvement from Dutch ministers in support of Mr Elbers in the direction of Paris. Others say that the KLM management has tried to keep a comfortable distance between themselves and Air France and that the chemistry between both was never good.
But - Air France is the owner and maybe the message Mr Smith sent out to Mr Elbers was “either dance with me - or leave the floor!” fact is that the new AF-KL management now wants to have a stronger hold over KLM’s movements.
A long road since 2003
Fifteen years ago, in 2003-2004, KLM was in dire straits and itself almost bankrupt. Discussions with British Airways to join forces were thought at that time to have been the answer but fell through. Then came the Air France formula and the deal was done. Since then KLM has been in Air France hands with the exception of a minority share mainly for bi-lateral rights issues being held by the Dutch government. The natural order of things would then dictate that Air France runs KLM. However, the French carrier has been extremely busy fighting itself over the past years, whereby KLM has continued on its own more or less successful path.
Now, Benjamin Smith wants more control over KLM and that’s not pleasing very many within KLM, including it seems, Pieter Elbers. The Dutch carrier has been operating more or less independently, but still 60%-70% of their passenger and cargo market share comes from outside of the Netherlands. They have to have a strong partner in order to enhance synergies and it looks like that there is no way at the moment that the carrier, even if they wanted to, can act as a ‘stand-alone entity’ in the aviation business.
Theoretically there don’t seem to be any scenarios out there whereby some other carrier(s) could consider a KLM buyout from Air France. Anyway, Air France would presently not consider that as KLM delivers good results.
Agreement reached to keep on smooth path
The last thing that the new AF-KL CEO needs is internal unrest within KLM. He still has enough to do to keep Air France above water. He’s been busy with that and has decided to disband the low-cost arm which runs under the Joon brand name and is busy with further restructuring. It seems that his Canadian charm has gone a long way to win over union support for some of his ideas. Something which was impossible a year ago.
Maybe KLM should have teamed up with Lufthansa back in 2003. Who knows, that may well have resulted in a better working relationship throughout!
At last week’s board meeting in Paris, both sides came to terms in order to avoid internal and customer unrest.
Pieter Elbers stays on board - Smith states that KLM will not be a ‘B-product’ within the group and that “there are no plans to change KLM.” A broad statement!
In what is seen as a move to pacify KLM even further, Pieter Elbers also assumes the additional role within the group as Air France-KLM deputy CEO along with the French CEO, Anne Rigail. Let’s hope that they can get on together.
Other changes are that Benjamin Smith becomes a member of the KLM Supervisory Board and simplified group processes will be introduced for fleet and network strategy, human resources, purchasing, commercial and alliance strategies and digital and data management.
The Netherlands Finance Minister, Wopke Hoekstra was quoted on Friday as saying that “I see no reason why we should consider selling our six percent share (in KLM).”
A happy family again?
One thing is however clear - Mr Smith wants KLM tied closer to Air France’s apron strings and that message has been delivered to KLM.
Will it mean job losses at KLM in the future? Smith says no - but others in the Netherlands see it differently as more control moves to Paris. There is continued skepticism in the Netherlands when many compare KLM’s results for 2018 with those of Air France. Again, KLM comes out on top.
Interesting months ahead.
John Mc Donagh