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Tensions eased as France, Netherlands vow to work together on Air France-KLM

France and the Netherlands will work together to improve the performance of Air France-KLM, the French finance minister said on Friday, after talks with his Dutch counterpart to ease tensions over the airline alliance.

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The French government is the airline’s largest shareholder, and so the Netherland’s shock stock buy – with the country now being the second biggest shareholder -- ratcheting up already strained relations between the two countries over the company.

The meeting Friday between Paris and The Hague has apparently gone some way to easing the breach. Finance Minister Bruno Le Maire's told reporters after a meeting with Dutch Finance Minister Wopke Hoekstra in the French capital, "We have explained ourselves to each other… We want to look to the future with the goal of making Air France-KLM the most successful airline in the world.”

Hoekstra explained before Friday’s meeting of the buy, “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 reason behind the tension, and therefore the share purchase, was that the Dutch felt that important decisions about KLM’s strategy were increasingly taken at the level of Air France-KLM. As a result, the French benefitted more than the Dutch from the merger.

Dutch finance minister: ‘I’m aware the acquisition was unorthodox’

The Netherlands covert buy of 14% of Air France-KLM shares - just short of France’s 14.3% - shocked the market and resulted in a 15% plunge in the airline's shareprice by Thursday night.

James Goodall, an analyst at Redburn, told FRANCE 24, “It was definitely a surprise. Even the Air France-KLM management team are not sure why there was secrecy in [the Dutch government] building the stake.”

While the Netherlands did not own shares in the France-KLM alliance before its first purchase on Tuesday, it did own a 5.92% stake in KLM itself.

“Because much of the efficiency gains for the group over the past few years have come from KLM and not Air France (because of the union constraints), the move adds protection from this trend continuing ad infinitum,” Goodall said.

After the Friday meeting, during which the two ministers agreed to put in place a working group which will deliver its conclusions on how to improve the alliance by June, the share price recovered by 5.4%.

“I’m aware our stake acquisition is not very orthodox, but it is based on good intentions,” Hoekstra told reporters after the talks with Le Maire. Both ministers affirmed their support for Air France-KLM’s new chief executive, Canadian Ben Smith.

“We want to build a better company, and we want to make sure the interests of both countries are taken into account,” Hoekstra said.

Protecting jobs

According to several news reports, Dutch ministers ordered the stealth acquisition after Smith appeared unreceptive to their concerns about his plan for closer integration between the Air France and KLM operations, and its potential impact on Amsterdam’s Schiphol airport if KLM flights begin to be transferred to Paris.

Since their 2004 merger, the two airline brands have maintained separate corporate structures and boards, and a high degree of management autonomy jealously guarded by KLM.

Smith appeared last month to have resolved a very public standoff with KLM boss Pieter Elbers, announcing that decisions on networks, fleets and commercial strategy would be taken at the group level to improve competitiveness against better-integrated rivals such as IAG, parent of British Airways and Iberia.

Parts of Smith’s programme may now face fresh challenges, with a second strong government shareholder in the boardroom. Together the two country’s states will control close to 30 percent of voting rights.

“[With the Dutch purchase] it will certainly make strategic planning and decision making in the business more challenging. Especially given the large stakes of Delta and China Eastern [who hold 8.8% each],” Redburn’s Goodall said.

In a joint statement, Le Maire and Hoekstra said their working group would address the governments’ “views on long-term strategy” for the group, while also “defending the interests” of its airport hubs at Paris Charles de Gaulle and Schiphol.

Jointly chaired by senior treasury officials, the panel will also review the two state’s shareholdings in Air France-KLM and the makeup of its board, they said.

Le Maire, who had condemned the Dutch stake purchase as “incomprehensible” and “unfriendly”, played down the dispute on Friday - even as ripples of indignation continued to be felt in Paris.

“What was unfriendly about this was the lack of warning, and the politicisation of a company was inappropriate,” European Affairs Minister Nathalie Loiseau told CNews television as Le Maire and Hoekstra were about to meet.

“It may please Dutch voters, but you can’t take business decisions for electoral reasons.”

 

(FRANCE 24 with AFP, REUTERS)

 

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