Air France victim of white-collar terrorism!

Air France-KLM’s long road to recapitalization, made unavoidable by the health crisis, is not over. But this is just another long episode in the history of a business that has rarely held its destiny in its own hands.

Terrorism has always been a concern in the airline world, but in the case of Air France, the terrorists often wore suits and ties and operated from offices.

A tug-of-war with the EU over recapitalization

We suspected as soon as the rescue plan was presented last year that it would not be enough, and that the airline would have to be recapitalized or even renationalized.

But the European Union, which is concerned about fair competition, doesn’t see it that way. Any state aid is seen as an infringement of competition rules, and requires action in favor of competition in return. In this case, giving up valuable slots to competing airlines.

Strangely enough, the first plan did not provoke any reaction from Brussels, unlike Lufthansa, which had to give in after lengthy negotiations. But this time Air France is not going avoid it.

But the context is not the same, and to demand the same of Air France as Lufthansa is to ignore the fact that the German airline is virtually hegemonic at Frankfurt and Munich, which is not the case for Air France at Roissy and Orly.

To date, Brussels seems to have agreed to lower its demands, but Air France will clearly still have to weaken its position at Orly, which is a second blow after the abandonment of certain domestic routes for ecological reasons.

But there’s more to come: part of the battle is also being fought in the Netherlands!

A love-hate relationship with the Netherlands and KLM

We’re talking here only about the French state’s share of the recapitalization, because when it comes to the Air France-KLM group, the Netherlands also has to do its bit!

The question of KLM’s slots at Schiphol will of course be part of the negotiations, but there’s something else: the Dutch government does not intend to participate in the recapitalization of the Air France-KLM group (followed by a capital increase at a later stage), but only in that of KLM. Remember that in the first rescue plan, France helped both Air France-KLM and Air France, the Netherlands had only helped KLM. And for good measure, let’s add that KLM has always refused to accept cash pooling, which allows the merging of treasury. of the Group’s various businesses, which means that since the early days of the Air France-KLM Group, KLM’s money has stayed with KLM. A behavior not unlike that of the British in the EU, “neither in nor out”…and we know how the story ended.

A sufficiently sensitive issue that the question of how the Netherlands would participate in the recapitalization was postponed until after the recent elections. Several months of negotiations were therefore lost.

But whatever the outcome of the discussions (and it’s likely that the Netherlands will continue to go it alone) at some point, the question of the group’s governance will have to be addressed with a marriage that has seen more backstabbing and backbiting than it was actually consummated. One day, the story of this marriage will be the subject of a comprehensive article.

But that’s not the end of the matter: if the capital is to be increased at a later date, we’ll have to see how the other shareholders behave!

Air France-KLM therefore has a lot to do, battling against the EU on the outside as well as on the inside, against a backdrop of disagreement between the French and the Dutch. But that’s not all !

From state capitalism to green washing

In 2019, we wondered about the role of a state in the capital of an airline. If its presence can be explained historically, it’s not out of the question to question its relevance in 2021!

Let’s say it once and for all: a business and a state do not have the same objectives and the fact that the latter has a stake in the former can have various causes, such as helping a sector to develop, using it as a tool of sovereignty, or as a standard-bearer for its vision of society.

If it weren’t for the States, air transport would never have been born and developed as it has, we’re no longer in 1930 or 1950. As far as sovereignty is concerned, the answer is the same: you don’t need the state to be a shareholder in the airline to put Paris on the map of the world and international trade. As for the standard-bearer aspect, this has often led to Air France being placed in the hands of technocrats from major government bodies who knew nothing about the sector, and to many strategic decisions being subject to the goodwill of Bercy, Matignon or the Elysée, which electoral interests have never coincided with Air France’s economic interests.

But at least the French State has saved Air France from bankruptcy on several occasions, notably during the health crisis, hasn’t it? Barely.

It often came to the rescue of a mismanagement to which it is no stranger and on the subject of the crisis, we would point out that Lufthansa and IAG (British Airways, Iberia…) were saved, while the two groups were totally private. ! Yes, Europe’s two biggest carriers are living their lives without their respective states having a seat on the board or a say in their strategy. Unthinkable here, but very real elsewhere.

Historically, and until the arrival of Ben Smith, who we wonder why he came into this mess, and a management team made up of airline professionals, Air France has been badly steered, badly managed and badly run. When you see the number of brilliant people who have left Air France to go and shine at the competition, where they finally had a real impact, it raises a lot of questions.

It has served to recycle many people, valued the technocratic dimension to the detriment of business skills, and spent its time buying social peace to the detriment of its future competitiveness.

States were not created to create value and jobs, nor were businesses created to play politics. That’s the trouble with Air France and other businesses that the French state watches a little too closely: nothing good can come from mixing the two.

In the midst of negotiations with the German government to rescue Lufthansa, CEO Carsten Spohr said:

Lufthansa has had the best three years in its business history. If it is to succeed in the future, it must continue to be able to shape its destiny in an entrepreneurial way

and

“The Board of Directors of Deutsche Lufthansa AG is continuing negotiations with the aim of ensuring the future viability of the business for the benefit of its customers and employees.”

In the end – and we’ll come back to this later – Lufthansa was able to close the deal without too many quid pro quos and, above all, without giving the state the power to influence its destiny, despite having acquired a stake in the company. An stake, yes, but a passive presence.

Would Ben Smith have liked to say the same thing ? Certainly. Could he afford it? No. When he arrived, he found an airline too weak and in too bad shape to be able to brag and negotiate a minimum of aid by threatening to file for bankruptcy protection in order to restructure under the protection of its creditors without state aid, as his boastful German counterpart was able to do.

In addition to finding an airline weakened by state-controlled management, he also had to deal with a Minister of the Economy who stabbed him in the back to buy a green conscience, a new Minister of Ecology whose worrying short-sightedness about who is really responsible for climate change is matched only by her desire to leave a trace, and a Minister of Transport supposedly close to the sector who disappeared from the debates from spring to autumn, only to show signs of life when the damage had been done.

Air France’s fate was decided in offices, but not its own

It’s one thing for an airline to fail because of poor management, but quite another for it to fail because of the management of others.

Since its privatization, Air France’s fate has been played out in offices that are not its own, and what happens in its own offices is merely the consequence of the rest.

Like a plane hijacked by white-collar terrorists using a GPS that isn’t that of a well-run private business.

In the meantime, while we’re on the subject of Lufthansa… the German airline doesn’t need a “second round”, and has begun to repay the aid received to get rid of the State’s temporary presence in its shareholder base. But how? By financing itself on the markets, as others did during the crisis, an option that is clearly unthinkable for Air France-KLM. Is it because the business doesn’t inspire enough confidence as a result of its past management or because of dogmatism?

Anyway, even if they’re unarmed and without voting rights, you can’t take off with economic terrorists on board.

Image : A380 Air France by meunierd via Shutterstock

Bertrand Duperrin
Bertrand Duperrinhttp://www.duperrin.com
Compulsive traveler, present in the French #avgeek community since the late 2000s and passionate about (long) travel since his youth, Bertrand Duperrin co-founded Travel Guys with Olivier Delestre in March 2015.
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