(MENAFN - Gulf Times) Air France-KLM Group chief executive officer Ben Smith struck a compromise aimed at easing a growing rift within the airline, backing Pieter Elbers to remain head of the Dutch arm and securing a vital seat for himself on the division's board.
Elbers's mandate will be extended for four years and he'll become deputy CEO of the group alongside Anne Rigail, who heads the Air France unit. The two executives and chief financial officer Frederic Gagey will also form a new strategic committee to be presided over by Smith.
At the same time, the Canadian will get a seat on KLM's supervisory board and the decision-making process for the Paris-based group will be streamlined in areas such as fleet planning and alliances to help boost margins and cut costs.
The trade-off is aimed at quelling a revolt among Dutch staff and letting Smith, 47, exert greater control, simplify governance and get the company's different businesses to work more closely in areas also including strategy, digital, human resources and customer-data management.
Mending the frayed relationship between Air France and KLM has become Smith's biggest challenge after French pilots backed a pay deal on Tuesday. Tensions between the carriers spilled into the streets last week, when hundreds of Dutch workers demonstrated at their headquarters outside Amsterdam in support of Elbers, who they feared would be ousted by Smith.
In a show of force, top KLM managers, staffers and even Dutch officials attended the protest, while more than 25,000 employees signing a petition in support of Elbers.
Air France-KLM posted a 31% drop in full-year earnings that once again highlighted a profitability gap between the larger French business and the smaller but higher-margin Netherlands unit. The difference has long been a source of distrust between the carriers, with a protracted series of strikes at Air France over recent years serving to widen the rift. Performance GapAir France's operating profit fell 69% to €266mn ($302mn) in 2018, with a margin of just 1.7%. That included a €62mn fourth-quarter loss because of strikes.
KLM's earnings were essentially flat at €1.07bn for the year, representing a 9.8% margin. The company said the focus for 2019 will be on yield — or fare — improvements, cost cuts and continuing to lower debt.
'We have made significant progress in reinforcing the trust and dialogue with our employees in both Air France and KLM, allowing for a shared strategic approach to accelerate the group's profitable development, its CEO said.
Smith, a former Air Canada executive, took over in September and quickly struck landmark deals with labor representatives at Air France, capped this week by a breakthrough with pilots that the airline says will be close to cost-neutral thanks to productivity gains. He's the first non-French head of a group that was formed through a 2004 merger of former flag carriers.
The French government is the most powerful shareholder in Air France-KLM, while the Dutch state holds a stake in KLM. In spite of the merger, the two arms have been operating semi-independently under a complex governance structure that maintains KLM's financial independence.