Business & Leadership

Air France-KLM: The Battle for Air Superiority

On February 26th, the Netherlands announced that it was increasing its stake in Air France-KLM to ensure a greater say in the airline’s future. This decision was not well received by the French government, a major shareholder in Air France, generating yet more turbulence for the alliance.

On February 26th, the Netherlands announced that it was increasing its stake in Air France-KLM to ensure a greater say in the airline’s future. This decision was not well received by the French government, a major shareholder in Air France, generating yet more turbulence for the alliance.


After the Renault-Nissan alliance, it is now the partnership between Air France and Dutch KLM that is under the microscope. Dutch Finance Minister Wopke Hoekstra made the announcement his government’s acquisition of 12.68 % of the airline’s capital, putting it at a similar level to France’s 14%. He explained, ‘With this acquisition, the Dutch government wants to be able to directly influence the future development of Air France-KLM to protect the best interests of the Dutch people.’
The move caught Paris on the hop, which was apparently informed at the last moment - and was described as ‘incomprehensible’ by Frances economy minister Bruno Le Maire. This capital increase is the consequence of growing Dutch concerns about the future of the airline.

 

Dutch get flighty

 

The Air France-KLM alliance, founded in 2004 when the Dutch company was acquired by its French competitor, is a constant subject of discussion, even tension, between France and the Netherlands. The Hague regularly expresses concerns about KLM's gradual loss of independence. Since 2006, Air France held a majority stake in the board of directors of its partner, with the power to appoint its CEO. This stranglehold strengthened with the appointment of a new CEO of the alliance in 2018. The Canadian Benjamin Smith, who, for the first time, got a seat on KLM’s board of directors, and signalled his intention to transfer part of the decision-making process for the two airlines to a holding company.
If Air France was considered the strongest link in the alliance 2014, this is no longer the case. Its poor financial results - despite KLM’s turnover in 2018 being almost double to that of 2004 at 10.95 billion euros - its industrial relations difficulties, and management turmoil have fuelled The Hague's concerns and encouraged its desire to take control.

 

French resistance

 

On the French side, the Dutch decision was badly received at first. According to Les Echos, Bercy had even considered blocking the move at the company's general shareholders' meeting. Scheduled for April, Pieter Elbers's term as chairman of KLM must be renewed at the meeting. Paris’s surprise is shared by the Air France-KLM board of directors. ‘This acquisition follows on from discussions with all stakeholders, including the Dutch government, and the group’s unanimous approval of the managerial organisation headed by the group’s CEO, Benjamin Smith,’ they stated in a statement. ‘The group was also ready to confirm the commitment to support KLM’s development to the Dutch government.’ The Dutch Government replied, via its minister of finance, ‘Air France-KLM is not competitive enough and there is still work to be done.’

 

Reconciliation in prospect

 

The stock markets shared Paris’ concerns. Air France-KLM’s stock value fell by 12% on February 27th and has not yet recovered despite the high-profile reconciliation of the two partners following a meeting between Bruno Le Maire and Wopke Hoekstra on March 1st. To end the disharmony, Paris and The Hague announced the formation of a bi-national working group to review the conditions of the alliance, its governance and its strategy, whose initial conclusions are expected in June.
Market caution is largely due to the uncertainty surrounding the future of the alliance and its governance. Delta Airlines and China Eastern, after two years of holding interest in the alliance, will have double voting rights in 2019, giving them the role of arbitrator between the French and Dutch governments. It remains to be seen which side they will favor in case of further trouble between the two partners.

 

Cécile Chevré

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