The French and Dutch governments have saved Air France and KLM, as have almost all governments, in different proportions, for their national airlines. A happy ending concluded rather promptly at the beginning of the crisis which allowed to reassure on the future of the airline while waiting, unfortunately, to know the impact of the crisis on a great number of jobs which could not be saved.
After this feeling of relief, we can now appreciate the situation with a bit of hindsight. And there things are much less rosy than we could have hoped. The rescue of Air France is accompanied by a certain number of compensations that are debatable or at least need to be explained.
A rescue but with strings attached
1°) To become profitable again.
2°) Abolish its flights of less than 2h30 where it is in competition with the TGV.
3°) To become more “green”.
Direct consequences:
1°) Air France will almost abandon Orly, sometimes by trying to replace Hop! by Transavia, in order to eliminate all its unprofitable routes.
3°) The airline will have to invest in a more “environmentally” efficient fleet.
4°) 7,500 jobs will be eliminated with a minimum of redundancies.
To this can be added a final, unofficial but predictable one: it is mechanically impossible for Air France to repay its loans on time as we said herewhich will lead to a partial renationalization of the airline in the medium term especially since a recapitalization is planned for this fall.
A journey to the land of the Care Bears
If Air France will not take us any more to Bordeaux at least we can thank Bruno Lemaire to allow us to make a beautiful trip to the land of the Care Bears.
Air France must become profitable again! What a nice joke. We know of only one business in France that has made non-profits a way of life and it is called SNCF. Air France has not always been well managed, far from it, its leaders have not always been inspired, far from it, its unions have not always helped it, far from it. But since 1994 and a recapitalization of 20 billion francs (many of those who keep mentioning this figure forget that in 1994 we were in francs and not in euros, which according to the INSEE calculator taking into account the monetary erosion due to inflation is worth 4.3 billion euros today) Air France has lived its life alone without asking for a single euro from the state.
It has not lived like Ryanair on subsidies from local authorities. It has not transferred its headquarters to Amsterdam, as it could have done, which would have saved it 1 billion per year.
A return not only to profitability but also to margins at the same level as its best-performing competitors was on Ben Smith’s roadmap without being imposed on him long before the COVID and as critical as we are in general of the previous leadership the road taken was good. There was no need for a crisis of demagogy from “Bruno the green thumbs” for a restructuring of the domestic network to be initiated. Certainly not in such proportions and with such violence but surely with more intelligence.
Air France must also become the most environmentally friendly airline on the planet. I don’t see what this means in concrete terms, apart from a nice message, once again very demagogic, and a vagueness that leaves the door open to all kinds of aberrations. But here again, everything was already in progress. Fuel is a major cost factor for an airline, so much so that its economic performance is closely linked to its energy performance, and therefore its ecological performance. Here again, with the arrival of the A350s and B787s in long-haul, the A220s in medium-haul, and the scheduled withdrawal of the A380s by 2022, which has only been accelerated by the crisis, everything was already planned. And it cannot be said that Air France has not been at the forefront of environmental responsibility for 10 years.
Ideally, it would also be good for Air France to preserve jobs. Of course, being forced to cut back and buy new aircraft in the midst of a crisis is the easiest thing to do.
Add to that the impact on the attractiveness of the territories that will be measured over the months and years but which is not the subject here.
The failure of the shareholder state
At Travelguys we have a firm position on state aid to any business, no matter which one, no matter what sector.
That a business disappears because of bad management, bad choices, bad execution is a pity but the state does not have to intervene to save anything.
The fact that an entire sector or economy is ravaged by a global phenomenon of which it is a victim is more of a force majeure and goes beyond specific aid to general aid. This is the case here and the aid granted to Air France, KLM, Lufthansa, British Airways etc. does not shock us. We would not have been shocked either if Ryanair and others were helped in the same way but, to take only this case, knowing that Ryanair is addicted to subsidies all year long, it is logical that it is not concerned because it has helped itself before the others.
What shocks us is the irresponsability of the shareholder. If you invest in a butcher’s shop, you are not asking it to promote veganism, and if you invest in Apple, you are not asking it to give more of the market value to Android.
This is even more serious when public money is involved. Investing in a business that is being hindered for the benefit of a competitor addicted to subsidies and that will end up in a monopoly situation is disrespectful to the taxpayer. Weakening it by freeing up enough slots at Orly for Lufthansa, British Airways and others to use them not for domestic flights but to feed their hubs from an airport that is easier for Parisians to access than Roissy (because that’s what will happen eventually) is exemplary in terms of European solidarity but a bit stupid anyway.
It is not the principle of the quid pro quo that is questionable, it is the nature of the quid pro quo. It’s not the content but the form: if the State had not demanded anything, the result would have been more or less the same, but in a different way and with a less negative signal sent to an entire sector.
But when one tries to do economics in the middle of an electoral period, when one succeeds in transforming a sanitary crisis into an environmental crisis (both exist, it is the amalgam that is far-fetched), one adds to both an economic crisis that we would have done well without.
Elsewhere: as good, less stupid
I don’t remember similar things happening in other countries, be it the UK, Germany or the US. Yes Lufthansa had to give up some slots in Munich and Frankfurt. It’s a pity, but given its dominant position on its hubs, it’s understandable and it was a request from the EU, not the government. In the meantime, we will continue to fly from Munich to Frankfurt in an A321, without our ecologically minded neighbors finding anything to complain about.
We must save the environment, the economy and jobs. No discussion. But in an emergency, you have to choose and prioritize, and there the French cultural exception has done its work.
The German State has even agreed to take a stake in the capital without voting rights in order not to disturb the management of the airline. The State is a savior, yes, but it should stay in its place when it comes to managing a business. Each should stick to its own job.
And this is the limit of the French system. Until the very end, Lufthansa threatened to go into “self-bankruptcy” to protect itself from its creditors and to reorganize on its own without the State having a say, even if it meant converting debt into shares for its creditors. It was a similar system put in place at the last minute that helped Norwegian. In the USA there is chapter 11 if necessary. In France, there is a lack of a system that allows a business to try to get by on its own or that allows it, in any case, to have arguments not to kneel in front of a state that has never known how to manage a business.
Productive counterparts exist
Yes to quid pro quo, but it must be for the benefit of all. There are many things that the state could have done:
– Let the market clean up the Air France routes instead of imposing closures. The result would have been the same or close to it, but with less trauma and the possibility of going back if it were ever made possible or necessary.
– An obligation to preserve jobs before anything else, even if it means financing them. After all, between the partial unemployment and the job center, it is all just a matter of accounting games.
– The obligation to accelerate the rejuvenation of the fleet, even if it means taking only Airbus aircrafts, and even if it means funding it. There are free production slots at Airbus and if all the “assisted” European airlines whose states are parties to the European program had decided (like Air Baltic) to accelerate all or part of their deliveries of “efficient” aircraft in order to retire the old ones more quickly, it would have been possible to limit the damage to the aircraft manufacturer for a while.
– To set up a tax (yes a tax..but since it is going to end up like that it might as well be useful) which would only finance the development of the “Zero Carbon” plane instead of going to finance a competing means of transport which is not necessarily as green as it wants to pretend.
– Forcing SNCF and Air France to work together for a continuity of service instead of organizing a rag tag battle by adding fuel to the fire. Have a sector approach and not a transport modality one.
Hijackers in the cockpit
But when you have a tradition of economic inefficiency set up as a state dogma, a minister of economy who thinks he is the minister of environment and a minister of transport who thinks he is the minister of SNCF, you start with money, a good idea and you execute it in a totally counterproductive way.
Air France will suffer a lot, as will the rest of the sector, that’s a fact. There is an opportunity for the airline to emerge from the sequence in better shape than its competitors who were in better shape before if the right choices are made. But there is every reason to believe that she has just made a pact with the devil and is taking off again with costumed hijackers sitting in the cockpit behind the pilot.
Photo : A380 Air France by Alejandro Gonzalez M via Shutterstock
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