French, Dutch Ministers Pledge Cooperation on Air France-KLM

(Bloomberg) -- The French and Dutch governments moved to calm a political maelstrom triggered by their power struggle over Air France-KLM, with finance ministers papering over differences and pledging to work together to review the carrier's shareholding and operations.

“Our goal is to make Air France-KLM the best-performing airline in the world,” French Finance Minister Bruno Le Maire said at a joint press conference in Paris Friday with his Dutch counterpart Wopke Hoekstra. “We're opening a new page in the history of this group.”

The ministers stood side by side after what appeared to be a tense 90-minute session, their first face-to-face meeting since the Dutch stealthily acquired a 14 percent stake in the airline. Their show of unity did the trick, sending Air France-KLM shares rising as much as 5.5 percent after a 15 percent drop over the two previous trading days.

Relations between the two European Union countries were put to the test this week after the Netherlands revealed it had secretly bought a holding to match the one held by France, blindsiding Paris. A French government official accused the Netherlands of “duplicity” and acting like a corporate raider, while the Dutch said they wanted to exert their influence in the running of the airline.

“We realize that this share purchase was unorthodox,” Hoekstra said on Friday, while promising to work alongside the French to make the company “more combative.”

The governments will examine their shareholdings in Air France-KLM and the capital structure of Air France and KLM, they said in a joint statement. A working group will also look at governance, board representation, the Paris and Amsterdam hubs, strategy and a previous 2003 agreement.

Little Leverage

“The final outcome must be a fair and balanced one for all sides,” the statement said, with conclusions expected before the end of June.

The tussle unnerved investors in Air France KLM who feared it would upend efforts by Chief Executive Officer Ben Smith to reduce costs. The Dutch government had complained it had too little leverage in KLM to be able to protect the country's interests, which include maintaining Schiphol Airport in Amsterdam as a joint hub for the airline.

There could still be areas of disagreement including whether the Dutch would be able to appoint a government representative to the AF-KLM board. Decisions on Schiphol have been kicked down the road after a working group draws its first conclusions in June.

Air France took control of KLM in 2004, but the two carriers have been operating semi-independently ever since, based on various agreements that made sure the Dutch government kept a say in the strategy of KLM. Last month, Smith secured a seat for himself on KLM's supervisory board -- something KLM had opposed when previous holding chiefs sought it.

Smith's move was viewed as a compromise after he renewed KLM CEO Pieter Elbers' mandate following what amounted to a Dutch revolt in favor of the executive. KLM employees staged a demonstration and petition backing their boss amid perceived bias against the Dutch arm. Elbers came out of the battle stronger, named deputy CEO along with the chief of Air France, Anne Rigail.

To contact the reporters on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net;Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, John Bowker

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