French Minister Warns Air France's Future Is Now in Jeopardy

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(Bloomberg) -- The French government doubled down on its warnings about Air France-KLM Group’s prospects, saying the protracted labor dispute over wages means the airline is losing out to rivals.

“I’m worried about the future of Air France,” Transport Minister Elisabeth Borne said on France Info radio Tuesday, echoing strong comments from the finance minister two days ago urging employees to bring an end to the conflict. The carrier “is less competitive than its partner KLM and other European airlines,” she said.

As Air France-KLM’s biggest shareholder, the government has waded into a tug-of-war between unions and management as a strike over pay continues and Chief Executive Officer Jean-Marc Janaillac prepares to quit over his inability to end the dispute. Borne criticized Air France pilots for excessive wage demands, weighing in firmly on the side of management.

“Air France employees must understand in what world we are in, and which competition they are playing,” the minister said. Air France unions asked management on Tuesday to resume talks, according to a Twitter post. At 6 p.m. local time they hadn’t set any dates for more strikes.

The carrier canceled about a fifth of its scheduled flights in the latest round of walkouts that began in February. A spokeswoman said the CEO will resign at the end of the annual shareholders meeting on May 15 and an interim leadership will be put in place.

Air France-KLM shares have suffered during the dispute, falling about 27 percent since the start of the strikes. Both UBS and Oddo BHF downgraded the stock on Tuesday, with shares ending nearly unchanged at 7.25 euros.

“Janaillac’s resignation creates uncertainty on Air France-KLM’s ability to restructure,” UBS analyst Jarrod Castle wrote in a note, cutting his rating to ‘neutral’ from a previous recommendation to buy the shares. “Investors will be cautious until the labor settlement and leadership situation becomes clearer.”

Air France “has competitive gains to make and it needs money to renew its fleet,” Borne said in the radio interview. “KLM partners are very worried about this situation.”

The strikes at Air France have opened another front in President Emmanuel Macron’s fight to overhaul his country’s economy by liberalizing labor laws. Walkouts at French railway SNCF have created hardships for travelers and commuters across the country, yet Borne said on Tuesday the state is maintaining its resolve to reform the train operator.

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

©2018 Bloomberg L.P.

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