Is Air France about to sink the AF-KLM Group?

Jack1985

Rumour mill today saying that thousands of jobs are to be axed within the Air France~KLM Group, apparently if the current cash burn keeps up the future looks very bleak. An independent review of the operation indicates costs need to be cut by 20% and apparently management are to hold meetings tomorrow to ''prevent the collapse of the group''.

The horrible issue here for the thousands in Holland is it seems KLM isn't loss-making, far from it - But is being dragged into the money pit that is AF. The recent trend from the group, similar in direction to Lufthansa by creating a new pan-LCC to compete with easyJet/Ryanair seems doomed to fail as a result of nearly all the current costs being maintained as a result of union refusal in France to budge on the concerns of AF~KL. It makes me wonder had the EU many years back actually allowed BA~KL to link up, would we be actually without AF~IB now? Highly doubt it due to the national ''prestige'' both carriers hold, but what do people think? Should KL try and ditch this doomed relationship and survive or risk collapse by remaining with the failure of an airline that is Air France?

Tenger

Jack1985 wrote: »

Rumour mill today saying that thousands of jobs are to be axed within the Air France~KLM Group, apparently if the current cash burn keeps up the future looks very bleak. An independent review of the operation indicates costs need to be cut by 20% and apparently management are to hold meetings tomorrow to ''prevent the collapse of the group''.

....Should KL try and ditch this doomed relationship and survive or risk collapse by remaining with the failure of an airline that is Air France?

Not really up to date with the issues but I expect it really depends on the legal aspects of the merger. Are they both separate companies or simply 2 brands under the same company (as in both BA, Iberia and Vueling under control of IAG)

man98

Go all Anglo and get rid of the extra baggage if you'll pardon the pun . The French unions won't budge, so it makes more sense that they should sort their own problems, it's not as if this partnership is anything more than an economic one. There are no problems with KLM, so there is no need for potentially redundant Dutch workers to pay the price for French stubbornness.

man98

man98 wrote: »

Go all Anglo and get rid of the extra baggage if you'll pardon the pun . The French unions won't budge, so it makes more sense that they should sort their own problems, it's not as if this partnership is anything more than an economic one. There are no problems with KLM, so there is no need for potentially redundant Dutch workers to pay the price for French stubbornness.

I would be pee'd off if my job was at risk because someone else was too stubborn/unionised to take a cut in pay/terms in another country. Something similar happened at SeaFrance, unions were too thick to read the writing and they held their ground the company was eventually wound up at a huge loss and hundreds lost their jobs rather than cut jobs and wages.

irishgeo

[Deleted User] wrote: »

I would be pee'd off if my job was at risk because someone else was too stubborn/unionised to take a cut in pay/terms in another country. Something similar happened at SeaFrance, unions were too thick to read the writing and they held their ground the company was eventually wound up at a huge loss and hundreds lost their jobs rather than cut jobs and wages.

The union boys didn't lose their jobs I bet.

roundymac

I was under the impression that at the time of the merger KLM was the loss maker and that AF was rescueing it.

smurfjed

Very interesting question....

“Transform 2015 will be completed by the year end having fully delivered on its objective of significantly improving the Group’s competitiveness and delivering a €1 billion-plus reduction in costs. Perform 2020, the strategic plan we are launching today, will be supported by two main levers: growth, which we are looking to capture in a number of areas, and competitiveness combined with financial discipline which should continue to ensure firm foundations for the development of Air France-KLM. This is why the ambitious initiatives we are launching today will go hand in hand with redoubled efforts to reduce costs and restructure activities which remain loss-making. By 2020, we will have built an air transport Group focused on a leading long-haul network at the heart of global alliances, with a portfolio of unique brands, restructured short and medium-haul operations with a reinforced presence in the low cost segment in Europe, leadership positions in cargo, maintenance and catering, and a significantly improved risk profile both operationally and financially.”

That is a significant reduction for costs especially if the French unions are not accepting any changes. They have announced 25% / 7500 redundancies for the KLM section. As for growth, well this year their passengers numbers are down 16% over 2013, its not known how much of this reduction can be attributed to the pilots strike, but is a significant reduction. It also appears that they are increasing the operation of Transavia and they are hoping that a lot of growth comes from this, hence the unrest from the pilots. It will be interesting to see how this develops over the next year.

As for splitting it, it appears that they merged unlike BA/IB, so there will be humongous costs associated with de-merging and i would hazard a guess that these would be greater than the 1bn that they are trying to save.

Jack1985

The worst part of this is, the main hemorrhage is Air France. KLM is doing extremely well, as its short-haul and long-haul plus regional are doing well. Complete opposite at AF, there are mumblings at KL that they need to separate to ensure Dutch workers don't suffer the consequences of the idiotic management team (primarily) in France.

smurfjed

I found the GROUP financials online, but they don't split them between AF/KLM, so how can one say that KLM are making money? The report that i read stated that KLM had to reduce its mountain of debt hence the layoffs.

Crumbs868

Their recent pilot strike cost €500m, that's a lot of revenue to try make up

m.bbc.com/news/business-29532670

Jack1985

smurfjed wrote: »

I found the GROUP financials online, but they don't split them between AF/KLM, so how can one say that KLM are making money? The report that i read stated that KLM had to reduce its mountain of debt hence the layoffs.

KLM made a profit of €133m in 2013 with a strong LF of 86%, overall staff headcount reduced by just 125 (Compared with FY12) to 35,662. In FY13, KLM also increased its cash flow, reduced its debt to equity ratio and increased its earnings per share. Cargo at KLM seems to be on a slight decline, cancelled out by growth in mainline. I shudder to think what horror story greets someone with AF's FY13 financials, that's where the moneys being burned.

http://www.klm.com/corporate/en/images/annual%20report%202013_tcm729-500557.pdf

smurfjed

thanks for that... interesting reading when compared to the group results
http://www.airfranceklm-finance.com/en/Financial-information/Results2

Noticed at the end of this that they own 100% of Irish entities called Takeoff 1 thru Takeoff 16... who/what are these ?

L1011

smurfjed wrote: »

thanks for that... interesting reading when compared to the group results
http://www.airfranceklm-finance.com/en/Financial-information/Results2

Noticed at the end of this that they own 100% of Irish entities called Takeoff 1 thru Takeoff 16... who/what are these ?

I would take a random guess at suggesting captive lease firms taking advantage of the tax advantages for leasing here. I seem to remember the Dutch railways lease their trains off an Irish registered firm for the same reason.

The few of the Takeoff # firms I chcked are in liquidation currently though.

irishgeo

irishgeo wrote: »

The union boys didn't lose their jobs I bet.

They all did as it happens, a new company was former in the UK so they could pick and choose staff not trouble makers from the old SeaFrance.

Snow Leopard

Should KL try and ditch this doomed relationship and survive or risk collapse by remaining with the failure of an airline that is Air France?

This is a common misconception. KL no longer have the option to "opt out". The airline is now wholly owned by the AF-KLM Group, and any separation would have to be agreed by the majority of the group's shareholders.

Such a move would have little support among shareholders given that a separation would inevitability result in the reversal of all cost savings achieved to date through the integration of back office functions. Dissolving AF-KLM and re-listing each company as separate entities would cost many many millions and would not be in the best interests of the group (even though such a move may very well be in the best interests of KL, but there is no way of knowing this).

I would also add that it is impossible for us to know exactly how profitable KL is. Through complex managerial accounting, profits and losses generated by the group will be allocated to each company in a manner that optimises the financial performance of the group as a whole. In this context, all financial data published by KL should be observed with caution.