UPDATE 1-Air France-KLM narrows losses in Q1

Wed Apr 30, 2014 2:42am EDT

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* Q1 operating loss 445 mln eur vs 532 mln yr-ago

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* Wins contract worth over $1 billion from Air China

* To sign codeshare agreement with Air Berlin

* CEO doesn't rule out re-investing in Alitalia (Adds details, CEO comments, background)

By Cyril Altmeyer

PARIS, April 30 (Reuters) - Air France-KLM narrowed its losses in the first quarter on the back of cost cuts and lower fuel prices, and announced a breakthrough contract in China for its maintenance business, the France-Dutch group's only profitable division.

Europe's second-largest network carrier by revenue reaffirmed its financial targets for the year in the face of "tough" conditions, as first-quarter operating losses declined to 445 million euros ($615 million) from 532 million a year earlier.

Revenue rose 2.2 percent to 5.554 billion euros, and EBITDA losses (earnings before interest, tax, depreciation and amortisation) more than halved to 50 million.

"We weren't helped by the economic climate, nor did it get worse, but there is no oxygen from that side of our business," Chief Executive Alexandre de Juniac said.

Air France-KLM said it had won a contract worth over $1 billion from Air China to maintain 20 Boeing 777 aircraft in China in a deal that could be extended to eight freighters.

De Juniac told reporters Air France expected to sign a codeshare agreement with Air Berlin in the coming weeks and did not rule out re-investing in Italian carrier Alitalia, which is now negotiating with Abu Dhabi's Etihad after Air France-KLM refused to take part in a capital increase last year.

"We haven't changed our position. We put conditions on the table and we understand Etihad has done the same, probably more severe ones than ours, which for the time being have not been satisfied," de Juniac said.

"The difference is that Etihad is ready to put up money that we don't have."

Asked whether Air France-KLM could re-invest in Alitalia if Etihad managed to reach a deal with the Italian carrier, he said: "There's no reason not to ask ourselves that question, especially if an agreement is reached on Etihad's terms, which are similar to ours.

"Then it also has to be compatible with our development plans. We are not closing the door."

"ACT OF CONTEMPT"

De Juniac hit out at plans by French pilots to hold five hours of strikes per day between May 3 and May 30 over their opposition to a French law on strike practices, after the airline said on Tuesday it would have to cancel flights.

The pilots want to end a law that forces them to give 48 hours' notice of any strike plans, but the airline says their beef should be with the government and that passengers will be unfairly penalized.

"It is an act of contempt towards passengers and other staff," de Juniac said. "There have been sacrifices, with people leaving (their jobs), and when I see that on top of this we have to endure a strike that has nothing to do with the company, then there is good reason to be annoyed."

Air France-KLM said its Transform 2015 restructuring plan was "fully on track," but that it was revising its operations to Venezuela, which is embroiled in a growing dispute with foreign airlines over the non-payment of local revenue.

The group reiterated a target for 2.5 billion euros in EBITDA for 2014, subject in part to measures to compensate for weak cargo demand and adjustments on the Caracas route. It said it was on course to reduce net debt to 4.5 billion euros in 2015. ($1 = 0.7237 Euros) (Additional reporting by Tim Hepher; Editing by James Regan)

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