Dutch take stake in Air France-KLM to counter French influence

THE HAGUE/PARIS (Reuters) - The Dutch government will take a stake in Air France-KLM equal to that of the French government in order to increase its influence in the carrier’s operations, a move that took the French by surprise.

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The investment comes weeks after a confrontation between the Dutch government and the company’s French-dominated executive board over waning Dutch influence, which has been exercised through its management of group subsidiary and Dutch flag-carrier KLM.

Dutch Finance Minister Wopke Hoekstra said on Tuesday the state had already taken a 12.7 percent stake for 680 million euros (584 million pounds) and aimed to increase that to about 14 percent. The French government holds 14.29 percent of the combined company that was formed in 2004.

The move is a “fundamental step toward protecting Dutch interests”, Hoekstra told journalists in The Hague. “Buying this stake ensures we have a seat at the table.”

Hoekstra said the state was not making an investment but protecting the interests of the Dutch economy and Amsterdam’s Schiphol airport, Europe’s third-largest airport and a major source of employment.

French Economy Minister Bruno Le Maire told journalists he and Air France-KLM’s board of directors had not been informed.

“I reaffirm my support to the strategy of the company and to its management,” Le Maire said, adding it was essential for Air France-KLM to be “managed without national public interference.”

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Le Maire’s statement appeared to contradict his Dutch counterpart.

“Several times in recent years the Dutch interest was not given enough weight in important decisions for the company as a whole,” Hoekstra said in a letter to parliament. “In our view, possible consequences for Dutch public interests are not given enough consideration in the current set-up.”

Hundreds of KLM workers gathered at the airline’s office in the Netherlands earlier this month to deliver a petition voicing support for CEO Pieter Elbers after rumours that Air France intended to remove him and fully integrate the two companies.

Air France’s new CEO Ben Smith travelled to the Netherlands for a reportedly uncomfortable meeting with Hoekstra before an Air France board meeting on Feb. 19..

Elbers’ reappointment was confirmed ahead of the group’s full-year earnings presentation on Feb. 20, at which Smith also announced plans for further coordination of the airlines’ fleets and networks.

Air France this month reported full-year operating earnings of 266 million euros, compared with 1.07 billion euros at the KLM subsidiary.

The group has trailed rivals Lufthansa and British Airways on profitability, held back by restrictive French union deals and strikes that last year wiped 335 million euros off earnings and forced out its CEO.

Additional reporting by Bart Meijer and Toby Sterling in Amsterdam and Tim Hepher in Paris; Writing by Anthony Deutsch and Matthias Blamont; Editing by Bill Rigby