Air France Pilots Approve Pay Deal, Handing CEO Smith a Win

(Bloomberg) -- Air France-KLM Group’s French pilots approved a pay deal, putting an end to last year’s labor conflict and handing Chief Executive Officer Ben Smith more freedom to define his new strategy.

  • The accord, hammered out during months of talks between management and unions, was approved by 85 percent of pilots, the SNPL union said in a phone message Tuesday. The group estimates pilots will get an average 4.3 percent pay increase, and the company has said the agreement will improve flexibility.

Key Insights

  • Air France’s two pilot unions had given preliminary backing to the proposal last month, with the larger and more powerful SNPL union holding off on a final signature until pilots were consulted in a vote. The wage increase comes on top of a 4 percent rise granted to all employees last year.
  • Securing peace with unions was at the top of Smith’s to-do list when he took over in September. Smith’s predecessor resigned after previous talks on pay led to rotating strikes and a companywide employee vote that pushed him out the door.
  • Tuesday’s deal was opposed by some, including Gregoire Aplincourt, the president of Air France’s SPAF pilot union, who said it chipped away at guarantees including that business won’t move from Air France to KLM.
  • Smith’s next challenge is to close the profitability gap between Air France and sister carrier KLM. To do that, the Canadian CEO will need to pare costs and boost sales.
  • The 47-year-old executive’s hands are now more free to work on strategy. He’s already said that the Joon brand, which was designed to woo young adults and cut costs, is set to be scrapped and that Air France and KLM, which came together in a 2004 merger, need to operate more like a single company.

Market Reaction

  • The shares rose as much 3.1 percent in Paris trading, taking gains to about 8 percent since the start of the year.
  • The airline is due to report results Wednesday, with a projected rise in 2018 revenue.

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