Air France-KLM should not go bankrupt, it is often said. But the bankruptcy of “the combination” could solve the persistent problems that exist at the head offices in Amstelveen and the French Roissy. This article does not argue for the end of KLM and Air France, but for a changed organization of their cooperation. And for another use of 11 billion euros, for which the Dutch and French governments are willing to draw the money.
At the core, the coronavirus is not the cause of a revision of the relationship, but the catalyst. Shipwreck already seemed inevitable in the long term, but is now emerging more sharply. Unfortunately, relations between Air France and KLM have become difficult. This fact is reason enough to be reluctant to pump 11 billion in the combination, much more than the stock market value. Moreover, if the finance ministers Wopke Hoekstra and Bruno Le Maire stipulate conditions that the support of EUR 4 billion and EUR 7 billion respectively may only benefit their national squadron, then the separation of spirits is complete.
Tensions within the group
It can be defended that both finance ministers “sell” their – in themselves impressive – support operations to politicians and the public on the pretext of protecting national interests. But at the same time it is unreal, because Air France-KLM is one group, in which both the Dutch and French States each have an equal share. From a corporate governance point of view, substantiating for a “Dutch” or “French” interest is not possible. The finance ministers show self-interest: KLM is from the Netherlands, Air France from France. They unwittingly contribute to the tensions within the group, because the use of the loans is itself another source of controversy. And “national” goals means that the result will by definition be sub-optimal.
The public performances of the two finance ministers also affect the relationship between the Netherlands and France. Then it is not wisdom to stretch the life of an entity such as Air France-KLM that does not lead to unity, but sows discord. It is strange not to draw any consequences from this for the structure of the combination. That does not mean that the roads of Air France and KLM should separate, but it does mean a different form of cooperation.
In Europe, we do not have an insolvency regime like the US Chapter 11, which has been successfully applied in the past to restructure airlines in the United States. But that does not mean that a similar approach does not fit Air France-KLM.
Suppose Air France-KLM deliberately fails, and Air France and KLM both start again with a clean slate, so without mutual entanglements. Then the Dutch State can deposit a loan of up to about 4 billion in the cash of the newly to be founded KLM, against the purchase of 100 percent of the shares. Naturally, subject to conditions regarding the fleet, routes, night flights, use of Schiphol, environmental requirements, and so on. The State as an activist owner who cares about the strategic interests of the Netherlands, which go beyond economic values and embrace sustainability.
For the record, such a scenario also applies to Air France, where 7 billion could serve as seed capital for a reborn airline that meets the conditions of the French government.
Healthy business operations
Bankruptcy paves the way for healthy business operations, with a much smaller workforce and lower costs (pilots). The capital of up to 4 billion makes it possible for KLM to make decent redundancy rules and to approach creditors. It is naïve that such interventions will not prove necessary if Air France-KLM is kept alive with loans.
The State is not intended to retain ownership; KLM is eligible to gradually be privatized again through the stock exchange, just like ING and ABN Amro.
Where KLM and Air France continue to find each other is the linking of their routes to a worldwide network. And there are countless areas where KLM and Air France can work together: destinations, frequencies, maintenance, purchasing or exchange of aircraft.
Seen in this light, what makes more sense than a “privileged relationship” between the independent airlines KLM and Air France. A voluntary cooperation, based on respect, equality and complementarity.
Looking back to the early years of Air France-KLM, the question arises why such a cooperation model was not chosen in 2003. The reality is that KLM was in fact bankrupt at the time, and that British Airways, like Lufthansa, was only willing to take over KLM by integrating into their own society with the deletion of the name KLM. It was Air France who offered the reaching hand, and after both KLM and the name KLM survived. A fact that is easily disguised in the Netherlands, but for which Air France still deserves great recognition.
Marc van Ravels is director of Visionex, a consultancy for French-Dutch relations, and former advisor to the board of Air France-KLM. This opinion piece is also published in the digital edition of the Financieele Dagblad, and does not necessarily reflect the opinion of our editorial team.