May 8, 2018 / 2:36 PM / 2 months ago

Explainer - Strikes and a departing CEO: Turmoil at Air France-KLM

BERLIN (Reuters) - Franco-Dutch airline Air France-KLM (AIRF.PA) is in turmoil after the CEO said he would resign following the rejection of a pay offer by striking French staff.

Jean-Marc Janaillac is the second CEO to depart since 2016 over rows with powerful French unions over cost-cutting efforts.

Air France’s French unions called on management on Tuesday to resume talks over the pay dispute.

The following is a look at some of the key issues involved.

UNION POWER

French unions have staged 15 days of walkouts since February, costing the company more than 300 million euros. A group of 10 unions representing pilots, cabin crew and ground staff at Air France have called for a 5 percent pay increase this year, saying they want to make up for purchasing power lost over six years of pay freezes.

Air France-KLM’s management has repeatedly rejected a pay increase of that scale and instead proposed a pay rise of 7 percent over four years, consisting of 2 percent in 2018 and a further 5 percent over the next three years.

French unions have a reputation for toughness, hitting the headlines in 2015 when workers ripped the shirts off executives after Air France announced job cuts following pilots’ refusal to work longer hours. Unions also forced Janaillac’s predecessor to row back on a plan to expand low-cost carrier Transavia, although Janaillac did manage to set up “lower-cost” unit Joon, using Air France pilots.

DOUBLE DUTCH

Air France-KLM was officially formed in 2004, with the takeover by Air France of KLM, which was struggling at the time.

Air France is still the larger partner in the tie-up, carrying 51.3 million passengers in 2017, against 32.7 million by KLM.

Cultural differences persist too, and Dutch pilots are exasperated by what they see as the French side’s lack of compromise. KLM has undergone restructuring and struck new labor deals to improve productivity and reduce costs. In the first quarter of 2018, KLM almost doubled its operating profit to 60 million euros, while Air France widened losses to 178 million euros.

Dutch unions said they see sticking with Air France as the best bet for now, although they urged a quick resolution to the problem.

A BRIEF HISTORY OF WALKOUTS

British Airways was the subject of a bitter pay dispute back in 2010, when it saw 22 days of cabin crew walkouts after a decision to cut cabin crew pay and alter staffing levels. The dispute was eventually brought to an end after 18 months and it cost the airline more than 150 million pounds.

BA CEO Willie Walsh also oversaw strikes by pilots and ground staff at loss-making Iberia in his role as CEO of airlines group IAG (ICAG.L) in 2013.

Lufthansa (LHAG.DE) was grounded by more than a dozen pilot strikes from 2014 to 2016 over a dispute on pay and early retirement benefits, with some walkouts lasting many days. It agreed a wide-ranging deal in 2017, and the walkouts cost it hundreds of millions of euros.

Like Lufthansa, Janaillac was trying to negotiate with staff at a time of rising profits.

Meanwhile, union refusal to accept restructuring at Italian flag carrier Alitalia saw it enter insolvency proceedings last year. The government is propping the airline up with a loan and is still seeking an investor for the carrier. Prospective buyer Lufthansa has repeatedly said it is only interested in buying Alitalia if it can first be restructured by Italy.

NEXT STEPS

The Air France unions, who feel emboldened in their latest demands by the resignation of Janaillac, have now said there will be a pause in the strikes, but have called on management to resume negotiations.

Air France-KLM’s board will meet on May 15 and decide on a management transition plan then. They have asked Janaillac to stay in place until the end of the group’s annual shareholder meeting, also on May 15.

Franck Terner remains CEO of the Air France unit, while Pieter Elbers is CEO of KLM. Elbers said on Friday that he would “contribute, wherever possible, to the stability and cohesion of the Air France-KLM Group.”

Reporting by Victoria Bryan; Editing by Hugh Lawson

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