Picture: REUTERS
Picture: REUTERS

Amsterdam/Paris — Air France-KLM shares fell 4% on Friday in response to the hostile reception from unions to the company’s new boss Benjamin Smith, while the airline’s Dutch pilots threatened to strike over working conditions.

Unions representing workers at the French company were openly hostile to the appointment of Smith, COO at Air Canada, accusing the group of handing control to a foreigner and not protecting Air France’s interests.

Air France-KLM shares were among the worst-performing stocks on Paris’s SBF-120 index.

"Driving the share price is essentially the discontent of the unions," Meriem Mokdad, fund manager at Paris-based Roche-Brune Asset Management, said.

Smith, who takes up his post before the end of September, will have to deal with labour troubles at Air France that have cost the airline €335m so far this year, forced the resignation of his predecessor, and seen shares slump 36% in 2018.

French unions are due to discuss another round of strike action on August. 27.

Meanwhile, in the Netherlands, the Dutch pilots union VNV said it would strike unless the airline’s management comes up with improved offers to ease their workload.

The union said work stoppages could begin in four weeks’ time, after it rejected a last-minute offer made by KLM late on Thursday. It wants the Dutch arm of Air France-KLM to start hiring new flight personnel as soon as possible, to give pilots more time in between flights.

KLM said it was already recruiting new staff, but that it was impossible to meet all the union’s demands.

Air France took over KLM in 2003 when the Dutch airline was struggling, but the two companies have continued to operate independently.

Air France-KLM said in May it expected profits to fall this year due to the effect of strikes at its French business.

The French government has a stake of about 14% in Air France-KLM, while Delta Airlines and China Eastern Airlines each hold 8.8%.

In a research note titled "New CEO — New solutions to old problems", financial services company Société Générale welcomed Smith’s appointment but kept its "sell" recommendation on Air France-KLM shares.

"[Smith] played a key role in Air Canada’s [AC] growth and modernisation strategy in recent years, redefined AC’s hub strategy and was also a driving force behind AC’s successful low-cost brand Rouge," SocGen wrote.

It noted that Smith’s predecessor, Jean-Marc Janaillac, met union resistance when he began the job. In the end, Janaillac lasted two years before quitting after Air France staff rejected his final salary increase offer.

"We hope that history won’t repeat itself — otherwise having a non-French CEO will be the least of the group’s and the [French] employees’ worries," SocGen wrote.

KLM has had more success in cutting costs than its French counterpart. The Dutch airline managed to agree several cost-cutting deals with its staff in recent years, which improved its profitability and put it in a stronger position than French partner Air France.

"Our pilots have given up a lot in recent years, making KLM profitable. Now it’s time for KLM to deal with its exhausted staff," VNV spokesman Joost van Doesburg said.

Reuters

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