Air France-KLM shares plunge after Dutch buy stake

Paris, France | AFP | Shares in Air France-KLM plummeted on Wednesday, a day after the Dutch government said it took a large stake in the troubled airline in a bid to match the French state’s influence.

France has reacted testily to the surprise intervention by the Netherlands, which said it needed to protect Dutch interests after a series of rows about the alliance’s management.

In the early European afternoon, Air France-KLM stock was nearly 10 percent lower on the Paris stock exchange.

The Dutch purchase of the 12.68 percent stake — which puts it on course to match France’s own holding of 14.3 percent — threatens to reignite tensions after a bitter dispute about the fate of the chief executive of the group’s Dutch arm.

“With this share purchase, the Dutch cabinet wants to be able to directly influence the future development of Air France-KLM in order to optimally ensure the Dutch public interest,” Dutch Finance Minister Wopke Hoekstra said Tuesday.

“The aim is to eventually get to a position equal to that of the French state,” which has a 14.3-percent stake, Hoekstra added.

The move stunned Paris, with Economy Minister Bruno Le Maire saying the Dutch government had not informed the French state.

“It is essential to respect the principles of good governance and for Air France-KLM to be managed… without state interference,” Le Maire said.

A finance ministry source told AFP Wednesday that the move as “unfriendly”.

“It’s surprising because for the past several months we have had healthy discussions with the Dutch authorities about taking Dutch interests into account,” the source said.

“The way this stake was acquired resembles the techniques of a trader instead of a state shareholder,” the source added.

– State interference? –

Analysts at Societe Generale said that while the Dutch swoop would likely be positive for competition within the alliance, it “could lead to escalating tensions and the company becoming even more political”.

“The Dutch government will now seek representation on the board,” the analysts said.

“The fact that the Dutch will continue to buy shares could support the stock price in the short term.”

The Dutch state started buying shares in the alliance on February 20, spending 680 million euros ($771 million) on the stake.

It will cost around a further 70 million euros to reach the French level, according to broadcaster NOS.

Air France and KLM merged in 2004 but continue to operate largely separately, while the French arm in particular has struggled with industrial action in recent years.

French Budget Minister Gerald Darmanin on Wednesday called on states to interfere in the alliance as little as possible.

“We must have good relations with our friends from the Netherlands,” Darmanin told Europe 1 radio.

“It is especially necessary that the states are involved as little as possible in the running of a large company like this,” he said.

“We must let the people of Air France-KLM work.”

– Power struggle over KLM chief –

Tensions emerged in recent weeks when the Dutch government backed the reappointment of KLM chief executive Pieter Elbers, after doubts arose over whether he would keep his job.

According to Dutch news reports, Elbers opposed plans by Air France-KLM CEO Ben Smith to merge the operations of the French and Dutch arms more closely.

Smith, a Canadian who is the first non-French head of the company, took up his post in September after former CEO Jean-Marc Janaillac quit in a bitter dispute over wages at the French arm.

Elbers was reappointed earlier this month after KLM workers protested and threatened to go on strike if he was axed.

But the French finance ministry source denied claims of strains, saying France had even proposed Elbers as CEO of the parent company, a post he refused.

“So to suggest that we’re not cooperative with the Dutch with regards to governance at Air France-KLM is something we absolutely reject,” the source said.