Will Air France/KLM split?

The cultural differences between Air France and KLM are large and the Air France/KLM holding company is certainly no love affair. But both personal and business interests facilitate the takeover by Air France in 2004.

Business and personal interests

The business interest is that Air France - thanks to KLM's top management - can buy KLM for next to nothing. The personal interest is that Air France showers KLM's management with princely salaries and very high bonuses. However, the takeover creates a combination of 2 carriers with very different cultures and very little trust among the partners.

Cultural differences

Ben Smith

Ben Smith

Fifteen years later, Air France is still performing poorly. Strikes are common in France, also at Air France, which makes the company vulnerable. In the Netherlands, however, strikes are rare and KLM is performing quite well.

Thanks to reforms, KLM has become more flexible, which is key given the market conditions. But it fears that Air France's poor performance will cause a money drain from Amsterdam to Paris, which would weaken KLM.

Fear of French dominance

This fear is reinforced when Air France/KLM's new CEO, the Canadian Ben Smith, says that he aims at more centralization within the holding. As a result, the Dutch government aims at a more level playing field for the French and Dutch governments in relation to Air France/KLM.

Buying stocks

Wopke Hoekstra

Wopke Hoekstra

The French government has a 14,3% stake in Air France/KLM, whereas the Dutch government has none. It only has a 5.9% stake in the subsidiary KLM. To get more say in the holding, the Dutch finance minister Wopke Hoekstra starts to buy Air France/KLM stocks on February 2019, 27.

In 2 days he acquires a 12.7% stake in the holding at the cost of €680 million. Ironically, after the transaction the stock price falls by 10%, so the investment's immediate effect is a €70 million loss for the Dutch treasury.

Voting rights

Despite the share transaction, the French government will have a say in the holding that is double that of the Dutch government, at least for the next 2 years. This is due to a French law called 'Florange', which stipulates that shareholders who have kept their shares for more than 2 years get double voting rights.

Bruno Le Maire

Bruno Le Maire

French irritation

Interestingly, the French finance minister Bruno Le Maire is not only annoyed by the transaction as such. Also the fact that he was was not informed until it had been completed irritates him.

This is strange as information about such a transaction is stock price sensitive. Due to strict rules regarding share transactions it had to be kept secret until it had been completed. Moreover, the French never informed the Dutch government about share transactions in the past.

Directors appointed by French government

Air France/KLM's board of directors has 19 members, 11 are French and 4 are Dutch. The others represent Delta Air Lines and China Eastern with an 8.8% stake each. Le Maire also says that politicians should not be involved in the governance of a private company.

Strike at Air FranceThis is a strange remark as well. First, aviation is closely connected with politics through international treaties. Second, 3 of the French directors have been appointed directly by the French government!

At both ends irritation is mounting. If this will not be addressed and solved on the political level it might be better to split. But the risk is that this could cause more problems than it solves.

Tags: Air France, KLM, Air France/KLM, government stake in airlines

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