Air France ‘in jeopardy’, warns French government

By Francois de Beaupuy

The French government has doubled down on its warnings about Air France-KLM Group’s prospects, saying the protracted labour dispute over wages means the airline is losing out to rivals.

“I’m worried about the future of Air France,” French transport minister Elisabeth Borne said, echoing strong comments from the country’s finance minister two days ago urging employees to bring an end to the conflict. The carrier “is less competitive than its partner KLM and other European airlines,” she said.

As Air France-KLM’s biggest shareholder, the French government has waded into a tug-of-war between unions and management as a strike over pay continues and chief executive Jean-Marc Janaillac prepares to quit over his inability to end the dispute.

Borne criticised Air France pilots for excessive wage demands, weighing in firmly on the side of management.

“Air France employees must understand in what world we are in, and which competition they are playing,” the minister said.

Air France unions yesterday asked management to resume talks, according to a Twitter post.

The carrier cancelled about a fifth of its scheduled flights in the latest round of walkouts since February that are crimping earnings. The CEO will resign at the end of the annual shareholders meeting on May 15 and an interim leadership will be put in place, according to a spokeswoman.

Air France-KLM shares have been hit during the dispute, falling about 27% since the start of the strikes. UBS and Oddo BHF downgraded the stock yesterday, with shares falling nearly 1%.

“Janaillac’s resignation creates uncertainty on Air France-KLM’s ability to restructure,” UBS analyst Jarrod Castle wrote in a note, cutting his rating to ‘neutral’ from a previous recommendation to buy the shares.

“Investors will be cautious until the labour settlement and leadership situation become clearer,” he said.

Janaillac, who has been at his post less than two years, used a more conciliatory approach than his predecessor Alexandre De Juniac, who also faced off with unions.

Analysts at RBC have compared a rejection of management’s pay proposal by workers to pressing the “self- destruction button”.

Air France “has competitive gains to make and it needs money to renew its fleet,” Borne said. “KLM partners are very worried about this situation”.

The strikes at Air France have opened another front in president Emmanuel Macron’s fight to overhaul his country’s economy by liberalising labour laws.

Bloomberg


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