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Franco-Dutch tensions flare over control of Air France-KLM

he Dutch government announced it had increased its stake to 14 percent, up from the 12.7 percent it had previously acquired and announced a day earlier.

ParisFrance, Feb 28 – A fight for influence over Air France-KLM erupted in a diplomatic spat between France and the Netherlands Wednesday, after Dutch authorities bought a major stake in the airline, then increased it, to stave off a suspected attempt to consolidate more operations in France.

On Wednesday evening, the Dutch government announced it had increased its stake to 14 percent, up from the 12.7 percent it had previously acquired and announced a day earlier.

The French government owns a 14.3-percent share in the carrier, which Dutch Finance Minister Wopke Hoekstra said Tuesday The Hague aimed to eventually match.

“With this share purchase, the Dutch cabinet wants to be able to directly influence the future development of Air France-KLM in order to optimally ensure the Dutch public interest,” the minister said.

However, with Wednesday’s announcement, the Dutch government said the purchase of Air France-KLM shares has been “halted.”

The acquisition caught the French establishment off guard.

“The government was not informed of this decision, nor its implementation. I take note of it. It’s now up to the Dutch government to clarify its intentions,” President Emmanuel Macron said at a press conference in Paris, referring to Tuesday’s announcement of the 12.7-percent acquisition.

Finance Minister Bruno Le Maire said he would hold talks with Hoekstra in Paris this week over what he termed an “incomprehensible” move.

“I consider that there is strength in union, and in the aerospace sector we have to consolidate our positions, and I believe it’s always better to pursue this consolidation with transparency and trust,” Le Maire said at a press conference.

The conflict poses a tricky challenge for Ben Smith, a Canadian who became the first non-French leader of the airline last September following months of strikes that cost the previous CEO his job.

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Concerns have been growing in the Netherlands that Smith is looking to shift more KLM flights to Paris from Amsterdam’s Schiphol airport in a bid to better compete against Lufthansa and also IAG, the owner of British Airways and Iberia.

“KLM’s position has been constantly eroded over the past few months,” Hoekstra said on Tuesday. “We now have a seat at the table.”

The prospect of a full-blown management battle sent investors fleeing, with Air France-KLM shares plunging well over 10 percent in afternoon trading.

The Dutch government took advantage of the cut-price shares to add to its stake.

Simmering tensions 

The Dutch move comes a week after the airline posted a surge in net profit to 409 million euros ($465 million) last year, up from just 163 million euros.

But most of that growth was thanks to the Dutch arm of the company, KLM, whose operating profit of 1.1 billion euros far outstripped the 266 million at Air France, which was hit by a series of costly strikes over pay.

Dutch worries intensified during recent wrangling over the fate of KLM chief executive Pieter Elbers, after doubts arose over whether he would keep his job.

Dutch media had reported that Smith considered Elbers “difficult”, and the Dutch government stepped in to back his reappointment after KLM workers threatened to go on strike if he were axed.

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Dutch Prime Minister Mark Rutte stressed this month that “KLM was extremely important to the economy of the Netherlands”, and that it was “essential that it should be well run”.

According to Dutch daily De Volkskrant, Rutte called Macron to inform him of the stake purchase — but only after it was completed.

‘Transparency and trust’ 

The Air France-KLM board, hastily convened on Wednesday, said afterwards it would “closely monitor the consequences” of the Dutch move, and ensure that it did “not negatively impact the new working dynamic” put into place by the company’s CEO.

Analysts at French bank Societe Generale, meanwhile, said Dutch officials would probably now ask for additional representation on the airline’s board.

“The aviation sector is extremely competitive, and the only goal… is to reinforce Air France-KLM’s competitiveness,” Le Maire said.

The head of the CFE-CGC Air France union, Bernard Garbiso, termed the Dutch move “chauvinist”.

“It’s not a good thing to have KLM trying to take power away from Air France,” he said.

“One shouldn’t forget that, once upon a time, it was Air France which allowed KLM to be saved,” he added.

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