May 4, 2018 / 4:51 PM / 3 months ago

Air France-KLM CEO to quit after staff reject pay deal

PARIS (Reuters) - Air France-KLM (AIRF.PA) CEO Jean-Marc Janaillac said on Friday he would resign after staff rejected a pay deal, plunging the airline into turmoil amid a wave of strikes at its French brand that has cost the company 300 million euros ($359 million).

Jean-Marc Janaillac, Chief Executive Officer of Air France-KLM Group, attends a news conference in Paris, France, May 4, 2018. REUTERS/Charles Platiau

In the job for less than two years, Janaillac had been battling to cut costs at the French national carrier to keep up with competition from Gulf carriers and low-cost airlines. But he ran into the same union resistance as his predecessor, raising questions over the airline’s capacity to reform.

Janaillac said he would resign in the days ahead after more than half of the staff at Air France who cast a ballot voted against the offer of a 7 percent increase over four years.

“This is an enormous mess that will only put a smile on the faces of our competitors,” Janaillac told a news conference.

He said he hoped his departure would spark “a more acute collective awareness” before leaving without taking questions.

Unions said they would stick with plans to strike on May 7 and May 8.

Air France-KLM earlier on Friday reined in its 2018 profit and growth expectations, partly due to the effects of the strikes, and said it was not able to take advantage of a good market environment for European carriers.

Air France needs to cut costs to keep up with leaner rivals in Europe. Profits at Dutch sister company KLM, which has cut costs, rose in the first quarter, contrasting sharply with losses at Air France.

Rivals British Airways (ICAG.L) and Lufthansa (LHAG.DE) have already undergone painful cost-cutting in recent years as they battled to compete with the rise of low-cost carriers in Europe and new competition from Gulf carriers.

Air France has lagged behind, with unions hampering efforts.

“There is inevitably some pain for staff when structural changes are made, but once that is dealt with, you’re left with a much healthier company,” said aviation consultant John Strickland. “That has been proved in the cases of the turnarounds achieved by Iberia and British Airways.”

HIGH-STAKES GAMBLE

Shares in Air France-KLM have tumbled 39 percent so far this year. The French state is Air France-KLM’s largest shareholder with a 14 percent stake, ahead of Delta Airlines and China Eastern which both hold 9 percent.

“It is up to the board to define how the airline gets itself out of this current crisis,” the French finance and transport ministries said in a joint statement.

In a high-stakes gamble, Janaillac said before Friday’s vote that it would be hard for him to stay in the role if the unions pushed back against the salary offer. His stance was backed by the French government which has previously said the dispute is damaging the company.

The reform-minded CFDT union, the largest in France, said it regretted the vote’s outcome as well as Janaillac’s decision to quit, but that it would not sign the pay offer in light of the result. A total of ten other unions rejected the offer.

Air France management had offered workers a salary increase of 2 percent in 2018 and a further 5 percent over the following three years. Unions demanded 5 percent this year.

“We were asking 5 percent this year, the company was proposing 2 percent. There is probably an answer to be found somewhere in between,” Philippe Evain, president of the SNPL pilots union, told news channel TF1.

Janaillac was appointed CEO of Air France-KLM in June 2016 after his predecessor failed to reform the airline in the face of union resistance.

Liberum analyst Gerald Khoo said ahead of the vote result that a rejection of the offer would suggest that Air France was incapable of being reformed.

“Losing two consecutive CEOs who have taken significantly different approaches to the unions would imply the business is unmanageable,” Khoo said.

Reporting by Cyril Altmeyer; Additional reporting by Victoria Bryan in Berlin Writing by Richard Lough and Victoria Bryan; Editing by Mark Potter and Jane Merriman

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