Leiden Law Blog

Troubled times for Air France/KLM

Posted on by Jelle Nijland in Private Law , 2
Troubled times for Air France/KLM

According to the annual results presented on 19 February 2015, Air France-KLM is suffering losses as it has been doing for six consecutive years. The multinationa l is now facing serious problems. Last year’s pilots’ strike at Air France offset the benefits of lower fuel prices and cost at least 500 million euro. The drop in profits creates great upheaval for the entire organization by pitting the interests of the French parent company against the interests of its Dutch daughter and more specifically, the French public interests against Dutch public interests. Chairman and chief executive Alexandre de Juniac has been restructuring the undertaking. He therefore also wanted KLM Royal Dutch Airlines (hereafter: KLM) to hand over excess cash to the holding so that it would be able to get cheaper loans. The initial fears of transferring excess cash from daughter company KLM to holding company Air France-KLM were assuaged after the plans encountered opposition from the (supervisory) board members of KLM and the pilots’ trade union. This however failed to lessen the revived fear of the complete demolition of KLM that first arose when KLM and Air France merged in 2004 to become the Air France-KLM Group. Both Air France and KLM continued to fly under their own brand names and operated very autonomously as subsidiaries of the group holding company.To appease the fear that the new group would benefit Paris more to the detriment of Schiphol’s importance as home base of KLM, arrangements were made to make sure that ‘both Paris Charles de Gaulle and Amsterdam Airport Schiphol would become the key hubs’. But since the French based Air France-KLM does not have a particular interest in safeguarding Dutch public interests, what would stop the multinational from harming these interests? Are there any legal means to help prevent Air France-KLM from cutting costs and thus jobs at KLM? This could result in endangering the main port function of Schiphol Airport, an important Dutch public interest. Some people have proposed the reintroduction of a golden share  for the Netherlands to preserve the importance of KLM and especially the main port function of Schiphol Airport. These people however may not realize that creating a golden share in accordance with EU law is not easy, since the ECJ examines the justification for such a measure strictly and the trust office (stichting administratiekantoor) only has limited possibilities to step in on behalf of the public interest. The relevant articles of association focus primarily on the ‘best interest’ of KLM, the group and its shareholders. It might well be said that the search for legal avenues for safeguarding the Dutch public interest has started a little late. A more befitting period in time would have been whilst discussing and accomplishing the privatization of KLM. Hopefully this instills a wish to plan the further privatization of future legal constructs for other government owned companies better. This does not mean that privatization as such should be rejected out of principle. But the Air France-KLM case does illustrate that when privatization is decided on, attention needs to be paid to the political responsibility and thus the legal possibilities for safeguarding national public interests. When a strategic interest for the Netherlands could be at stake, politicians and lawyers alike should examine how this public interest could be protected within the existing legal framework and what the fundamental freedoms within the Union allow.

2 Comments

Nijland
Posted by Nijland on October 15, 2015 at 10:36

Thank you for your comment. In addition, it is noteworthy that both the Dutch employers’ organization ‘VNO-NCW’ and the Dutch political party ‘PvdA’ want the government to buy shares in KLM so to have a legal possibility for safeguarding national public interests. (http://www.nrc.nl/nieuws/2015/10/13/kabinet-moet-aandelen-air-france-klm-kopen)

SHOETAN YUSUF
Posted by SHOETAN YUSUF on September 28, 2015 at 13:57

This piece sufficiently presents the dilemna faced by partnering companies in intenational partnerships. There should be a clearer determinant of change in terms, which will be more sensitive to the economic realities of the partners. Afterall, equality is not justice.

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