Air France-KLM: French Arrogance Is Still Flying High

It’s a trait that you either love or hate, but either way you have to put up with it. I’m referring to that particular annoying gallic habit of thinking that you can act selfishly and that nobody else has the right to do the same. You defend your culture because you think that it’s exceptional. You defend your businesses for exactly the same reason, not questioning the way they function or analysing the profits they may or may not make. The fact of being French suffices in itself, and is synonymous with separate rules, a separate vision. The trait I’m referring to is called arrogance, and no one is better at being arrogant than the French.

In wanting to protect KLM flights and Dutch jobs at Amsterdam’s Schiphol airport, the Dutch government has increased its stakes in the company to 14%, and is now on a par with the French.

The official French reaction is one of surprise, annoyance, and indignation, with French president Emmanuel Macron, asking for “explanations” from the Dutch government. The French reaction is in itself surprising, failing to take into account the reasoning that lies behind the Dutch decision to protect its national airline.

The Netherlands is by far not the worst country in the world when it comes to state interventions, but in this case the Dutch government found it necessary to protect a vital part of its economy and an essential part of its national heritage – its airline.

The French argue that KLM is a subsidiary of Air France. As such, the Dutch airline should comply to, and endure, every managerial mistake that Air France makes, and bear the consequences of repeated strikes and conflicts that occur on French soil. For their part, the Dutch fear that the present managerial board and, in particular, the Canadian CEO of Air France, Benjamin Smith, wants to transfer many lucrative flight routes from Amsterdam to Paris, thus heavily favouring Air France. The Netherlands has always been an open economy and has proved attractive to foreign companies. Schiphol airport and its multiple international connections has played an important part in luring foreign investors to the Netherlands.

The merger of the two airlines, that took place in 2004, is certainly no match in heaven. The 2018 financial report speaks for itself, with KLM making four fifths of the group’s profit despite generating just half the turnover. KLM’s profit margin was thus five times higher than that of Air France.

 

 

The Dutch have always been annoyed by the way the French pilots imposed their law throughout the group. The efforts made by KLM should not be used to pay for Air France pilots. – Marc Ivaldi (France Info)

France has always considered itself as a strategic state, and now faces the harsh reality that it might not be alone. But the biggest adaptation that the French will have to make concerns the relationship of the group with its workers. Gone will be the days where French workers can have it all their own way, and even go as far as to strip executives of their shirts. But the Dutch may have to wait awhile, before being able to really calm things down within the group. An internal rule states that shareholders who detain more than 9% are entitled to a “double vote,” after a period of two years. At the present time, only Air France holds that right, being joined by Delta and China Eastern, next summer. Another aspect that the Dutch will not be able to control, is removing Benjamin Smith’s seat from the KLM boardroom. After his appointment in September last year, Smith insisted on taking his place on KLM’s executive board, and threatened to get rid of KLM’s chief executive, Pieter Elbers, if he did not obtain satisfaction. Smith gained his seat, and did not remove the Dutchman in the process.

It is fair to say that the Dutch have not strictly played by the rulebook. The Air France-KLM group is supposed to be a joint venture that operates in a cut-throat world, where the sky is literally the limit when it comes to what you can do to undermine the competition. France are world champions, not only in football, but also in securing financial deals even at the cost of moral values. The Dutch have sensed this, and fear that Air France would make sure that KLM did all the “dirty work,” by leaving them with smaller and less attractive flight routes, or fewer routes altogether. The recent problems concerning the Renault-Nissan CEO, Carlos Ghosn – accused by Nissan of having too much influence in the group, and also suspected of tax fraud and misuse of company funds – only underscores Dutch worries that another unscrupulous Frenchman could end up being the next CEO at the group. It poses the problem of former French state-owned companies falling into the hands of dubious CEO’s, whilst the companies are still supported by the French state.

The present dispute between Air France and KLM reflects differences in mentality between France and the Netherlands. It also underscores my profound belief that European federalism, a concept in which all EU member-states operate on the same wavelength, is just not feasible and even less desirable. Air France is a company that is characterised by an expensive and highly centralised hierarchy, in comparison to a more liberal and decentralised KLM. These differences reflect French and Dutch mentalities and visions of society that cannot be federalized.

In forcing their CEO upon the Dutch company which, single-handed, is keeping Air France afloat, the French have shown a high degree of arrogance, and not much diplomacy. The Dutch have responded by giving the French a taste of their own medicine. For Paris and its gallic pride, the prescribed pills are difficult to swallow.

 

 

 

 

 

mm

gskaye