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Analysis: Air France-KLM CEO hunt signals industry strategy shift under Macron

Reuters  |  PARIS 

By Richard Lough

(Reuters) - The for a new to lead Air France-KLM, a group hobbled by union resistance to cost-cutting at its French brand, is testing Emmanuel Macron's resolve for a lighter state touch on the economy.

has told the Franco-Dutch group its very survival is at stake if it fails to become more competitive and undergo the painful reforms completed by carriers such as and as they battle low-cost airlines and Gulf carriers.

In what would signal a subtle shift in French industrial strategy, two sources familiar with Macron's thinking said the government is open to considering a non-French national as of the group for the first time.

This would sit above one for Air France, who would almost certainly be a French national, and one for KLM, one of the sources said.

It is just one option on the table. Macron's office expects to receive a shortlist of candidates from the group's interim management by the end of next week, a third source familiar with the matter said.

The group has been led by French chief executives since its formation in 2004, a demand of the French state, its largest shareholder and one with heavy influence over the group's board thanks to its outsized voting rights.

The last, Jean-Marc Janaillac, resigned in May after losing a fight over pay with Air staff. His role as group and as well as chairman of the Air unit has prompted a rethink of the structure.

Paris' readiness to consider a foreigner to oversee a revamp of the airline's strategy and negotiations with Air unions reflects Macron's desire to create pan-European companies that can withstand globalisation, even if that means placing control of a national asset in foreign hands.

"What we want to do is to create European champions," a official said, speaking on condition of anonymity. "It's not of primary importance that the boss has to be French."

"It wouldn't worry us if we ended up with an from "

and Eastern Airlines, which both hold 8.8 percent stakes in Air France-KLM, declined to comment.

Two names have leaked to media in past weeks. Philippe Capron, the of Veolia Environnement, pulled out after French ministers said they wanted an and that he was one of several candidates.

reported on Monday that Catherine Guillouard, chief executive of French public transport group RATP, was being considered for the top job at Two sources told she was not an official candidate.

INVESTOR PRESSURE

The job of chief executive may not be one that widely appeals.

The next will face the unenviable task of having to break union resistance to reduce Air France's swollen cost base, while keeping increasingly frustrated Dutch KLM staff onside. A wave of strikes this spring at Air France over pay cost the group some 350 million euros ($410.97 million) and led to the ouster of Janaillac.

Sources say KLM officials are frustrated at and blame Air France's weak handling of the powerful SNPL pilots' union for the group's fragile state.

Investors are frustrated too. The group's share price has slumped 47 percent so far this year.

Asked recently if the group could have a Dutch chief executive, KLM responded: "why not?"

The pressure from investors to slash costs has intensified as rising fuel costs and overcapacity squeeze margins.

warned after Janaillac quit that he would not soak up the airline's losses.

Overseeing a restructuring of Air France-KLM would cement Macron's reputation as a reformist and moderniser.

"Restructuring ... is what is required to move Air France-KLM forward. Anything else will be history repeating itself," said

STATE EXIT?

Macron could go further and sell-down France's 14.3 percent stake in Air France-KLM, a move that would deliver a potent message that he is serious about liberalising the economy.

The state's exit from the group would hand its leadership more freedom to stare down the unions.

"(IAG chief executive) just stared them down until blood came out of their eyes and they gave up," said

announced last month it was looking at buying all or part of the French state's stake - an option the government has not closed the door on but which faces obstacles.

"The government is studying things and is closed to nothing, but the first priority is to find a new leadership team for Air France-KLM," the official said.

AccorHotels' overseas investors could, however, complicate any deal. Its main investors are from and the Gulf, whose own airlines compete with Air France-KLM on long-haul routes.

rules also require more than half of a European airline's capital to be held by member states or EU nationals.

"Accor's capital today is not sufficiently European for it to work," said a second source familiar with the discussions. There would, however, be ways to overcome this, analysts say.

The state's holding remains an open question. Nonetheless, analysts are encouraged by broader comments on the future of Air France-KLM coming out of the French

"The noises heard out of the finance ministry definitely signify a change in attitude towards Air France-KLM from the French state, said Roeska. " And they fit with Macron's wider strategy."

(Additional reporting by and Jean-Baptiste Vey; Editing by Alexandra Hudson)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, July 10 2018. 21:02 IST
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