Air France Turmoil Is Said to Spur KLM to Seek Change at Top

(Bloomberg) -- The Dutch arm of Air France-KLM Group is seeking a change in the beleaguered carrier’s management structure in a bid to gain more influence after a protracted French labor conflict led the company’s chief executive officer to resign, according to a person familiar with the matter.

KLM is growing increasingly frustrated with mounting losses from strikes at the Air France division, said the person, who asked not to be named because the position isn’t public. The unit is seeking a return to a past form of governance under which the group chief executive officer had a Dutch deputy, the person said. That system was scrapped five years ago.

An Air France-KLM spokeswoman didn’t comment on the deputy CEO role, while saying the group has the ability to appoint a vice chairman.

Air France-KLM, which was created in 2004 by the merger of French and Dutch national airlines, was thrown into turmoil on Friday when CEO Jean-Marc Janaillac said he would quit after employees rejected a wage offer. Since then, French ministers have warned that the carrier’s future is in jeopardy and urged local unions to end the conflict. The shares have slumped 28 percent since the latest walkouts began in February.

Tension between the French and Dutch units has surfaced regularly in recent years due to a succession of strikes by unions in France demanding higher pay and resisting other cost-cutting measures. The two main divisions have never fully integrated or moved beyond national sentiments, with the more efficient Dutch arm largely propping up the group. Air France’s operating loss widened to 178 million euros ($211 million) in the first quarter, while KLM’s profit almost doubled to 60 million euros from only two-thirds of the revenue.

Power Balance

Following the 2004 merger, Air France-KLM adopted a structure featuring a French CEO, Jean-Cyril Spinetta, the deal’s architect, and a Dutch deputy, Leo van Wijk. When the two men stepped down in 2013, the deputy CEO position was eliminated in favor of a Dutch vice-chairman’s role. That position was itself scrapped with the retirement of Peter Hartman last year.

The Air France-KLM spokeswoman said that the group’s by-laws continue to allow for a vice chairman, and that it’s up to the board to decide to whether to appoint one and what the role should entail.

While KLM still has its own divisional CEO, Pieter Elbers, Air France also has its own chief in Franck Terner, with Janaillac holding the group CEO and chairman’s role until he leaves on May 15. The company has said an interim leadership team will be put in place.

Concerns that Air France’s woes could impact KLM operations have also entered the political arena, with Dutch ministers warning against pandering to the powerful French pilot lobby. KLM was Europe’s fourth-largest airline before it was bought by Air France, with its Amsterdam Schiphol base acting as an inter-continental travel hub way before Persian Gulf carriers hit on the idea.

Air France employees have staged 15 days of strikes since Feb. 22 that the company says will wipe at least 300 million euros from operating profit this year. Pilots at KLM, by contrast, last staged a walkout in 1995.

The shares have slumped more than 47 percent this year, and were little changed at 7.166 euros as of 10 a.m. in Paris.

©2018 Bloomberg L.P.

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