Air France Gets Fresh Set of Eyes in Air Canada's Ben Smith

(Bloomberg) -- Air France-KLM’s new leader may have close to two decades of aviation experience, but in many ways he is an outsider in his new job.

Ben Smith is Canadian, a flash point for unions who called the appointment of a non-French CEO inconceivable. He’s also a departure from the routine at French companies with state involvement, whereby the government would cycle executives in and out of high-powered roles, be it a utility or an airline or a senior political post. And by European airline standards, having a foreigner run a national carrier remains the exception, rather than the rule.

But all those points give Smith the advantage of a fresh start, something that both his predecessors were denied when they came in and were later whisked out by fierce union opposition. His credentials as a dealmaker were touted by the French government, which owns a 14 percent stake, pointing to the task that lies ahead for Smith: pacify unions, rebuild trust from customers and catch up with rivals like British Airways and Lufthansa that have already made their peace with workers after years of crippling strikes.

“As an outsider, we expect him to bring valuable fresh perspectives, without historical baggage,” Gerald Khoo, an analyst at Liberum in London, said in a report Friday.

For the unions, it’s not just that the 46-year-old Smith isn’t French, it’s also that he’s a representative of cold-hearted capitalism. That’s the view of Vincent Salles of the CGT union, who said Friday that investors’ support for Smith’s appointment was a red flag.

“He has the favor of the financial markets because when his name appeared in the press Wednesday the share price of Air France-KLM finished higher,” Salles said in an interview on France Info radio. “For us it’s a worry.”

But it’s the accusation that he isn’t local that stuck the most. Most European airlines continue to be run by local CEOs, from SAS AB to Finnair Oyj to Deutsche Lufthansa AG. But there are also plenty of examples of foreigners running airlines including Emirates Airline, Etihad Airways PJSC, EasyJet Plc and IAG SA, the owner of Air France-KLM’s archrival, British Airways. Nationalities aside, one thing all major airlines have in common is that they’re run exclusively by men.

“He is the first non-French national to be appointed as group CEO,” said Khoo, the Liberum analyst. “This has already proved controversial with the French unions, but we understand he has the clear backing of the French state, which remains the largest shareholder.”

Smith, Air Canada’s operations chief, will take over as Air France-KLM CEO by Sept. 30, the Paris-based airline said in a statement late Thursday. His predecessor, Jean-Marc Janaillac, quit this year after failing to end a series of crippling strikes. The company also needs to appoint a non-executive chairman and said it would announce its choice "as soon as possible.”

“I am well aware of the competitive challenges the Air France-KLM Group is currently facing and I am convinced that the airlines’ teams have all the strengths to succeed in the global airline market,” Smith, an anglophone who also speaks French, said in the statement.

Air France shares slumped 3.5 percent to 8.73 euros at 11:20 a.m. in Paris, extending their loss for the year to 36 percent.

Higher Pay

Smith’s compensation also will make him a target in France, where high executive salaries are politically incorrect, especially at state-owned companies. Janaillac was paid about $1.2 million last year, the lowest pay for any CEO at the 10 biggest publicly traded European and U.S. airlines, according to data compiled by Bloomberg.

Smith will receive an annual salary of 900,000 euros, and has the chance to earn bonuses that would bring his total compensation to 4.25 million euros a year, according to a person familiar with the matter who asked not to be identified because he wasn’t authorized to discuss the subject. That total is well below the average for the airlines.

The recent history of company-labor relations hasn’t been glorious. In 2015, a protest of job cuts by Air France workers near Charles de Gaulle Airport ended with two managers having their shirts ripped off as they were trying to escape. Janaillac unsuccessfully staked his job on a staff vote on his plans.

A group of nine unions, including the CGT, said Thursday that they would meet Aug. 27 to decide the next steps to take in their long-running pay dispute. The company offered a 2 percent salary increase in 2018 followed by a 5 percent rise over the 2019-2021 period. Workers’ rejection of that proposal led to Janaillac’s departure in May. Unions initially sought a 6 percent pay rise this year, before lowering their demand to 5.1 percent.

Air France-KLM also has labor troubles at its Dutch unit. KLM rejected a final offer from the VNV pilots’ union for a proposed labor agreement and the process has reached an impasse, the union said Friday. VNV members will plan actions “in the coming period” to change the minds of KLM management, the union said.

Salles backed off the criticism of Smith’s nationality, saying instead that workers are concerned the company will expand its low-cost operations, leading to lower pay for employees.

“We’re still determined to succeed in our demands,” said Salles. “Thus, yes, there’s a strong risk of strikes if Ben Smith isn’t capable of renewing a dialogue with the unions of Air France.”

--With assistance from Richard Weiss.

To contact the reporters on this story: Phil Serafino in Paris at pserafino@bloomberg.net;Geraldine Amiel in Paris at gamiel@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net, Thomas Pfeiffer, Kim Robert McLaughlin

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