The French government has stated that it has no plans to bail out ailing national carrier, Air France, and the airline must shape up or risk “shrinking and not being able to compete”.
After debilitating strikes led to losses of $480m (€400m) since February this year, resulting in shares losing half their value, the airline faces complete failure if it doesn’t come up with a plan to effect a financial turnaround.
After experiencing over-extended operating costs and strategic blunders, over and above tumultuous labour difficulties, the carrier installed an interim management team on May 15, with board member Anne-Marie Couderc as interim Non-Executive Chairman, and CFO Frédéric Gagey as interim CEO, in an attempt to reboot Air France’s leadership. This is the third person to lead the company in under two years after former CEO, Jean-Marc Janaillac said on May 4, that he would resign.
Janaillac was responsible for the 2004 merger of Air France and KLM. These have, however, been operating as separate units – which makes Air France’s figures look even direr: Air France lost €178m in the first quarter, and KLM – with two-thirds the revenue of its partner – saw profit almost double to €60m.
The French government has said that Air France “could disappear” if it doesn’t sharpen its competitive edge, and it isn’t prepared to bail out its flagship airline. “With hundreds of flights cancelled in the run-up to the crucial summer travel season, you may see a vicious spiral as passengers scared by strike threats defect to other carriers,” says Chris Tarry, a British aviation consultant.
“The company urgently needs to cut costs, integrate the separately run Air France and KLM units, and develop a strategy to defend its Paris hub, where it’s under increasing attack from low-cost rivals. The scary alternative is that Air France could head in the direction of Alitalia – the Italian carrier that endured bankruptcy last year, but is fighting its way forward with new routes opening to Rome-Johannesburg and Rome-Mauritius,” says Jos Versteeg, an analyst at Theodoor Gilissen Bankiers in Amsterdam.
“The state is not here to come to the rescue of enterprises that don’t do what’s necessary to remain competitive,” said Economy Minister, Bruno Le Maire, who vowed to oppose any plea to aid the floundering airline.
Air France held its annual shareholder meeting on May 15, where the new management team offered no details about its way forward, only saying that management decisions would be “taken collectively” by an executive committee that includes Gagey and the heads of the French and Dutch operating units. Daniel Röska, a London-based analyst at Sanford C. Bernstein & Co., commented: “Whoever takes over permanently will face challenges from competitive threats in key markets, an emboldened union in France, and the lack of a coherent long-term strategy.”
