Air France and KLM end power struggle, agree to closer ties

Air France and KLM have reached a compromise deal on tightening ties between the airlines, ending a power struggle that had alarmed the Dutch government, staff and shareholders

PARIS -- Air France and KLM have reached a compromise on tightening ties between the airlines, ending a power struggle that had alarmed the Dutch government, staff and shareholders.

Air France also secured a salary agreement with pilots after protracted conflicts, including strikes last year that shaved 335 million euros ($380 million) off 2018 profits, the alliance said Wednesday.

Details of the deals weren't released, but group Chief Financial Officer Frederic Gagey said the Air France-KLM plan should boost the companies' prospects despite high fuel prices and other challenges ahead. Gagey said the group was "absolutely not" considering merging the two airlines entirely.

The plan includes a new joint "CEO committee" that group Chief Executive Benjamin Smith hopes will simplify decision-making and save money. It also involves closer sharing of activities such as purchasing, Gagey told reporters.

Crucially, it allows Pieter Elbers to stay on as KLM's chief executive.

Smith had reportedly pushed for an even closer alliance, which Elbers opposed. That raised concerns in the Netherlands that Elbers would be pushed out and KLM's role diminished.

Smith then met last week with the Dutch government ministers of finance and infrastructure to discuss the future of the alliance.

Dutch Prime Minister Mark Rutte, speaking at his regular weekly press conference on Friday, declined to detail what was discussed, but he stressed what was at stake. "It is unbelievably important for the Dutch economy that KLM functions well," he said.

"The organization is not in danger, but it is an organization that, if you compare it with other airlines, is not functioning brilliantly," he said.

Speaking in Paris, Elbers sounded relieved that negotiations over the new structure were over.

"It's been a complex time. I'm glad it's behind us and we can move forward," he told Dutch broadcaster NOS. "The support from all the people at KLM and in the Netherlands has been heart-warming."

KLM went through layoffs and cost cuts and is more profitable than Air France, which has faced extended labor disputes.

Air France pilots' unions welcomed the salary agreement meant to end the hostility. "After months of conflict, it was time to enter a new era," Guillaume Gestas, head of the SNPL Air France ALPA union, said in a statement.

Air France-KLM announced an overall profit in 2018 of 409 million euros ($464 million), up from last year when one-off charges hit the bottom line but lower than some peers. Revenues in 2018 were 26.5 billion euros ($30 billion), up 2.5 percent from the year before.

The group warned of an "uncertain" global context in 2019 because of geopolitical tensions in several countries where it operates and high fuel prices.


Mike Corder in The Hague, the Netherlands, contributed to this report.