INTERNATIONAL - Air France-KLM Group tumbled in Paris trading as Europe’s biggest airline battles turbulence triggered by Chief Executive Officer Jean-Marc Janaillac’s resignation and a deepening labor conflict.
The stock dropped as much as 14 percent, the most since 2002. Even before today, the shares had lost 40 percent in value this year, making it the worst performer on the 26-member Bloomberg World Airlines Index.
The carrier was thrown into disarray on Friday when Janaillac said he planned to submit his resignation to the board May 9 after workers rejected his final wage offer -- an outcome that even caught some unions by surprise. Yet their defiance continued Monday as another two-day strike got underway and the airline scrapped about 15 percent of services. Air France-KLM has already warned the labor action that started in February will wipe out at least 300 million euros ($358 million) in operating profit this year.
While the airline maintained almost all long-haul flights during the latest walkout, it was forced to cancel one in five medium-haul services Monday from Charles de Gaulle airport in Paris and short-haul trips from Orly were also affected, according to its website. Further disruptions are predicted on Tuesday as the industrial action is scheduled to continue.
Janaillac, who has been at his post less than two years, used a less confrontational approach than his predecessor Alexandre De Juniac. Analysts have compared a rejection of management’s pay proposal by workers to “pressing the self destruct button.”
The shares fell as much as 14 percent, the most since Sept. 30, 2002, and were trading down 10.5 percent to 7.24 euros at 11:51 a.m. in Paris, giving a market value of 3.1 billion euros.
Janaillac has the backing of the French government as President Emmanuel Macron tries to overhaul his country’s economy by liberalizing labor laws and cutting taxes on capital. Future projects also include changes to jobless benefits in Europe’s second-largest economy. He’s also in a tug-of-war with unions over a plan to overhaul the country’s SNCF national railway, which has triggered a series of strikes.
French Finance Minister Bruno Le Maire on Sunday said the Air France worker’s demands were unjustified, urging them to show “responsibility” and saying taxpayers won’t bail the company out.
“If it doesn’t make the necessary efforts to be at the same competitive level of Lufthansa and other major airlines, it will disappear,” Le Maire said on BFM TV. “I am not taking the money of the French and putting it in a company that isn’t at the required competitive level.”
Janaillac was held up by Le Maire and Transport Minister Elisabeth Borne for his courage in the face of Air France’s challenges.
While airlines from Deutsche Lufthansa AG to British Airways -- and lately even low-cost specialist Ryanair Holdings Plc -- have all had their share of corporate dysfunction brought on by strikes, none has suffered to the extent as Air France. A simmering conflict exploded into open carnage in late 2015, when two of the airline’s executives were physically assaulted by enraged workers, forcing them to flee and scale an industrial fence, their business suits and shirts ripped to shreds.
Air France said Friday that rising expenses for jet fuel plus a stronger euro will add to the burden caused by a string of walkouts by staff fighting for higher wages. Janaillac had put his job on the line, holding an online consultation on the pay offer. He lost his gamble when 55 percent of staff unexpectedly rejected the proposal, which was for a 7 percent increase over four years. Janaillac held a short press conference late Friday to announce his planned resignation.
Air France had had 13 days of labor action by pilots, cabin crew and ground staff since February. While the outcome of the wage offer consultation isn’t binding, it will boost the unions’ negotiating position. A majority of labor representatives have to approve any wage deal to take effect.
Flights by KLM and Hop! will not be affected by the walkout, Air France said, adding customers with tickets for travel Monday or Tuesday can re-book free of charge. Travelers should expect last-minute delays and cancellations, the group said, adding it will update its flight schedule for Tuesday on that day.