Air France-KLM's New CEO Seals Elusive Deal With French Unions

(Bloomberg) -- Air France-KLM Chief Executive Officer Ben Smith marked an early victory just weeks after taking the top job by reaching a pay deal with French unions that had eluded his predecessor.

The accord at the Air France arm includes a wage increase of 2 percent retroactive Jan. 1 and another 2 percent to take effect in 2019, according to a statement Friday. The agreement came after an acrimonious labor dispute that culminated in the resignation of former CEO Jean-Marc Janaillac after his wage proposal was rejected.

Shares in the Paris-based carrier fell 3 percent, taking losses to 39 percent since the start of the year, as investors digested the costs of the salary increases. The standoff between management and unions, and 15 days of strikes earlier this year had rocked shareholder and customer confidence and cost the airline 335 million euros ($386 million).

The pay deal was signed by a majority of unions, which the airline said represented 76 percent of employees at Air France, but missing among the signatories was the pilots’ union, SNPL. Negotiations between that group and management aren’t over, SNPL spokesman Philippe Evain was quoted as saying by AFP on Friday.

Air France-KLM isn’t the only airline in Europe that has faced labor strife this year, with discount carrier Ryanair Holdings Plc also locked in disputes with its employees in countries around the region. The sector is also feeling the brunt of intensifying competition from upstart and low-cost carriers and rising costs due to higher oil prices.

Smith, who as a Canadian is the first foreigner to lead the state-backed airline, came from Air Canada and even before his first day on the job was under pressure from French unions. They objected to his annual pay of up to 4.25 million euros ($4.9 million) -- about quadruple what Janaillac made.

The new CEO also stumbled out of the block with the French government, getting his knuckles rapped by Economy Minister Bruno Le Maire last month for his reported comments about what the state planned to do with its 14 percent stake.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Vidya Root, James Regan

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