Air France-KLM eyes CSA, crisis ongoing

Pierre-Henri Gourgeon, Chief Executive Officer of Air France-KLM, speaks at the Reuters Travel and Leisure Summit in New York March 2, 2009.

NEW YORK (Reuters) - Air France-KLM (AIRF.PA) will launch a tentative bid for Czech Airlines (CSA) within weeks as European carriers regroup in the face of a downturn that so far shows no signs of easing, its chief executive said on Monday.

The move comes after it won a 25 percent stake in Italian carrier Alitalia and weeks before the Franco-Dutch firm starts up a key transatlantic joint venture with Delta (DAL.N), fed by traffic scooped up from its own network and partner airlines.

"We understand the Czech government is interested in finding a buyer for a significant part of (CSA). We don't have a lot of information but we are of course very attentive because CSA is a Skyteam partner," Air France-KLM CEO Pierre-Henri Gourgeon said.

Asked whether Air France-KLM would submit an official expression of interest for the Czech privatization by a March 23 deadline, he said, "We will express something, yes."

Gourgeon was speaking at the Reuters Travel and Leisure Summit in New York in his first overseas interview since he became CEO of Europe's largest airline in January.

Air France-KLM had previously declined to say whether it might bid for CSA, saying only that it would study the dossier.

Analysts expect the airline, which broke-even in the past two years after a history of losses, to fetch some $200 million.

Hungry to boost the flow of passengers into more lucrative long-haul flights, Europe's "Big Three" -- Air France-KLM, British Airways (BAY.L) and Lufthansa (LHAG.DE) -- have been jostling for control of smaller former state carriers crippled by recession.

Air France-KLM earlier this year beat Lufthansa in a race to absorb a cleaned-up version of bankrupt Alitalia to tap Europe's fourth largest market. Gourgeon said the deal's logic was intact despite Alitalia filling only 43 percent of its jets in January.

Gourgeon reaffirmed recently downgraded forecasts of an operating profit in the year to March 31, which the airline says will depend especially on its performance in cargo.

But ahead of publication of data, he said there were no signs the economy had begun to haul itself out of the mire in February. "We don't see any noticeable trend which would be positive."

That included both the yields on premium traffic, which have been falling as airlines find it harder to fill seats, and cargo traffic which plummeted over 20 percent in December and January, leaving the bellies of Air France planes barely 50 percent full.

Economy cabins are near full on transatlantic legs, but that is partly because business travelers are downgrading. Still, as they tend to book late, that has pushed up average fares in the back of the plane but not by enough to offset premium declines.

Forward passenger bookings are mixed, Gourgeon said.

"March has less volume due to Easter but better quality, while April has good volume but less quality."

STAYED IN CHINA

The airline also awaits signs companies are returning to producing goods like car parts and electronic goods -- leading to inward shipment of components -- rather than reducing stocks.

In a telling reversal, cargo traffic to Europe from China has been eclipsed by traffic going the other way, Gourgeon said.

"We think it is a question of stocks and that producers will start again at a lower level, but we don't know what. The economy is waiting for something. It is probably more depressed now than (it will be) in the weeks to come because of this effect."

Euro zone manufacturing had its worst month in over a decade in February, while China's exports fell 17.5 percent in January.

Criticized by some analysts for not being aggressive enough in cutting capacity to meet falling travel demand, Gourgeon said he had no plan to extend cuts of 2 percent announced last month.

These are equivalent to 5 percent at some rivals because Air France-KLM gains a benefit equivalent to 3 percent from the ability of its dense Paris-Amsterdam hub to draw in traffic left stranded by cutbacks on secondary routes elsewhere, he argued.

However, it may delay delivery of some Airbus A380s (EAD.PA) on top of deferrals of Boeing (BA.N) planes already announced.

Gourgeon did not rule out job cuts but said Air France planned to continue staff reductions through attrition. Its unions plan to join French strikes on March 19 over the crisis.

A hiring freeze trimmed the head count by 1,500 or 1 percent to 2 percent in the past year. Gourgeon said he expected similar reductions in the next fiscal year ending on March 31, 2010.

A soft-spoken former military engineer who masterminded a tie-up between Air France and Dutch KLM under a Paris-listed holding in 2004, Gourgeon sees untapped synergies from the deal. They maintain their networks but he ruled out a full merger.

The extra synergies would be long-term ones in IT, he said.

Air France-KLM is likely to present a mixture of synergies and cost announcements with its end-year results, he added.