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The Dispute Between KLM and Air France is Heating Up Again: The Latest Updates

The Dispute Between KLM and Air France is Heating Up Again: The Latest Updates

The Dispute Between KLM and Air France is Heating Up... Again

The relatively new head of the Air France-KLM Group has certainly got his work cut out.  As a quick recap, Benjamin Smith became the first non-French chief executive of the Franco-Dutch airline group in September 2018 – his appointment came about after his predecessor Jean-Marc Janaillac was forced to resign following a string of strikes at Air France in a dispute over pay and conditions.

Despite Smith’s highly successful track record at Air Canada, the unions didn’t initially react well to the appointment, fearing the interests of France would be sidelined with a foreigner at the helm.  Smith managed to win the unions over with a pay deal that pretty much gave in to their demands, also agreeing to close down the Joon unit where staff were on significantly cheaper contracts.

At the time, Smith said he hoped the agreement would improve “trust and fruitful dialogue between Air France and our employees” – although getting the buy-in of employees and unions would also lead to significantly higher costs.

Since then, Smith has signalled his interest in more closely aligning the French side of the business with the Dutch KLM side.  Air France and KLM merged to form Air France-KLM in 2004 – it’s one of the largest airline group’s in Europe but the marriage hasn’t created the happiest of relationships.

Under the leadership of Pieter Elbers, the Dutch airline has pursued a fiercely independent and very successful business strategy.  The airline has pushed through with painful cost-cutting measures and negotiated new labour agreements with staff in order to keep the business competitive.  KLM has outperformed Air France for years and 2018 was no different – while the Dutch side delivered a profit of €1 billion, Air France contributed just €266 million.

The general feeling is that KLM is propping up the French side of the business so integrating the two sides of the company isn’t top of the agenda for Elbers.  But with his four-year contract coming up for renewal in April, there were rumours Smith would use the opportunity to see the back of Elbers in order to realise his vision of bringing KLM and Air France closer together.

As a sign of just how unpopular that strategy is on the Dutch side, over 25,000 KLM employees signed a petition calling for Elbers to remain in post.  A letter that accompanied the petition said: “there would be a very real risk of unrest among the employees and unclear and potentially unstable management if Pieter Elbers were to be forced to step down.”

In the end, Elbers’ contract was renewed but then things got really interesting.  At a time where most governments are trying to offload any remaining stakes in once nationally owned transportation companies, the Dutch government decided to acquire a 12.68% in the Air France-KLM at a cost of €680 million.  That stake was then quickly raised to 14% – bringing the Dutch government’s stake in the airline group roughly in line with the stake held by the French government.

“Buying this stake ensures we have a seat at the table,” explained the Dutch finance minister, Wopke Hoekstra inferring that Smith’s current strategy of closer integration risked Dutch jobs and economic development.

The Dutch raid on Air France-KLM shares has prompted something of a minor diplomatic rift between France and the Netherlands.  French officials have called the share purchase “incomprehensible” and now the French unions are getting involved.

A coalition of unions who represent pretty much every workgroup at Air France says the French government is not doing enough to protect their interests.  They’ve called the French government’s reaction “weak”, saying it shows a lack of interest in the future of Air France.

This could now prove really interesting.  Smith clearly wants the two sides of the business to work closer together – it’s a strategy that makes sense as they’re currently operating almost as completely separate airlines with few synergies.  At the same time, you can see how the Dutch side believe any integration will be loaded to benefit Air France at the expense of Dutch jobs.

Smith has already given into the French unions once – that may have been the right decision but it will certainly make any future disputes more difficult.  Air France-KLM says its hopes the political dispute will not “negatively impact the new working dynamic” that Smith is trying to implement.

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