Air-France KLM’s future held hostage by union’s demands

While Air-France-KLM’s management has offered a pay hike of 2% in 2018 and a further hike of 5% across the next three years, the union has demand that in the very first year itself salaries be raised by 5.1%. The French government, the airline’s biggest shareholder, has taken a hands-off approach.

On Monday, following the rejection of a pay deal by Air France-KLM’s staff, the airline’s CEO Jean-Marc Janaillac stated he would resign which sent its shares to their lowest one-day nadir in a decade.

Janaillac’s attempts to cut costs as Air France-KLM tries to better compete with budget airlines and with peers from the Gulf, ran into a strong headwind, much like the efforts of his predecessor, which raises questions over the airliner’s ability to reform.

Air France-KLM’s board is set to meet on May 15 and decide on a management transition plan.

Meanwhile, the French government, the largest shareholder, holding a 14% stake, stated it would not come to the airline’s rescue.

On Monday, the shares of Air France-KLM fell by 14.3% to an intraday low of $8.30 (6.93 euros) in early trading, its lowest level since April 2017. At 0810 GMT, Air France-KLM’s shares were seen at 7.02 euros, down by 13.3%.

According to analysts at Bernstein, a brokerage firm, Janaillac’s gamble to put the pay offer to a vote by all employees has backfired.

“This leaves the company with no CEO, no labor contract, an ongoing dispute, and likely emboldened unions which will be even less likely to concede on their demands, now,” said Bernstein analysts in a note.

On Monday, Air France stated 15% of its flights would be canceled as pilots and cabin crews have gone on strike over the pay dispute for a 14th day since February.

The wave of strikes at Air France have cost it 300 million euros, so far.

“If Air France does not become more competitive … (it) will disappear,” said French Finance Minister Bruno Le Maire on Sunday as he urged the company and its workers to resume talks.

French unions have complained the company’s management is not serious about negotiations.

“The absence of any dialogue is clear. No one has called me this weekend. There are still no meetings planned for further negotiations,” said Philippe Evain, leader of the SNPL pilots union to RTL radio.

Air France’s management team had offered a salary hike of 2% in 2018 and a further increment of 5% from 2019 for the next three years. However, its union has demanded a hike of 5.1% this year.

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