Air France-KLM Turmoil Deepens as CEO Prepares to Resign

(Bloomberg) -- Air France-KLM Group is facing its biggest crisis in years as Chief Executive Officer Jean-Marc Janaillac prepares to quit amid a deepening labor conflict that the French government has warned is threatening its very survival.

The stock dropped as much as 14 percent, the most since 2002, on Monday, when Europe’s biggest airline was forced to scrap 15 percent of its flights and said even more would be canceled on Tuesday due to a series of strikes that began in February.

Investors dumped shares after Janaillac on Friday unexpectedly lost his high-stakes gamble to bypass unions in a bid to end the crippling walkouts. The CEO is scheduled to submit his resignation to the board May 9 following the rejection by employees of management’s final wage offer. The carrier, whose shares have dropped 46 percent this year, has warned the labor showdown will wipe out at least 300 million euros ($358 million) in operating profit in 2018.

The outgoing CEO has the backing of the French government as President Emmanuel Macron tries to overhaul his country’s economy by liberalizing labor laws. French Finance Minister Bruno Le Maire on Sunday said the Air France workers’ demands were unjustified and urged them to show “responsibility.” Taxpayers won’t bail the company out, he said.

“If it doesn’t make the necessary efforts to be at the same competitive level of Lufthansa and other major airlines, it will disappear,” Le Maire said on BFM TV. “I am not taking the money of the French and putting it in a company that isn’t at the required competitive level.”

Philippe Evain, president of the French SNPL pilot union, told RTL radio Monday he was “shocked” by Le Maire’s comments, adding that “the survival of Air France is not in question."

The Dutch Finance ministry is “keeping an eye on the situation,” spokesman Coen Gelinck said. The government owns just under 6 percent in the Dutch unit, KLM, while the French state has about a 12 percent stake in the combined group.

Janaillac, who has been at his post less than two years, used a more conciliatory approach than his predecessor Alexandre De Juniac, who also battled unions. Analysts have compared a rejection of management’s pay proposal by workers to “pressing the self destruct button.”

The shares fell as much as 14 percent, the most since Sept. 30, 2002, were trading down 9.9 percent to 7.29 euros at 3:58 p.m. in Paris, giving a market value of 3.1 billion euros. Air France-KLM is the worst performer on the 26-member Bloomberg World Airlines Index.

While airlines from Deutsche Lufthansa AG to British Airways -- and lately even low-cost specialist Ryanair Holdings Plc -- have all had their share of corporate dysfunction brought on by strikes, none has suffered to the extent as Air France. A simmering conflict exploded into open carnage in late 2015, when two of the airline’s executives were physically assaulted by enraged workers, forcing them to flee and scale an industrial fence, their business suits and shirts ripped to shreds.

“Mr. Janaillac picked a solution to solve a problem that bypassed unions, and we believe that any solution linked to a collective labor agreement should always involve the social partners,” Joost van Doesburg, a spokesman for the Dutch pilots union VNV said.

According to De Telegraaf newspaper, Airbus’s former chief operating officer Fabrice Bregier is a candidate to succeed Janaillac. Air France called the report a “rumor.”

Flights by KLM and Hop! will not be affected by the walkout, Air France said, adding customers with tickets for travel Monday or Tuesday can re-book free of charge. Travelers should expect last-minute delays and cancellations, the group said.

Monday marked the 14th day of labor action by pilots, cabin crew and ground staff since February. While the outcome of Janaillac’s wage offer consultation isn’t binding, it will boost the unions’ negotiating position. A majority of labor representatives have to approve any wage deal to take effect.

©2018 Bloomberg L.P.

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