Shirt-Ripping Air France Workers Tear Up Another Executive

(Bloomberg) -- For a brief moment these past weeks, it appeared that France's once-mighty unions had lost their clout. Rail workers, once synonymous with crippling strikes, staged a walkout that went largely unnoticed as travelers shrugged, turning to buses and ride-sharing instead. But over at Air France, that well-oiled worker conflict played out in a decidedly more retro fashion.

Late on Friday, a visibly shaken Chief Executive Officer Jean-Marc Janaillac threw in the towel, resigning from a post he held for less than two years after failing to win backing from employees for his pay proposals. Calling the labor conflict a “huge waste,” the CEO said the only beneficiaries are rivals that have managed to move beyond the endless cycle of strikes that have dominated the European aviation industry in recent years.

While airlines from Deutsche Lufthansa to British Airways -- and lately even low-cost specialist Ryanair -- have all had their share of corporate dysfunction brought on by massive strikes, none have suffered the endurance and even violence of Air France's labor ranks. The 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.

Falling Stock

The conflict has also strained the nerves of investors, who have sent the stock of the airline down 40 percent this year. Lufthansa, which last year finally manage to overcome years of pilot strife, has fared better losing less than a fifth in value this year, while British Airways parent IAG, which years ago broke the spell of strikes, has gained 4 percent so far in 2018.

Rotating two-day walkouts have taken their toll, with the carrier warning Friday that full-year results are expected to be “notably below” 2017. The strikes will wipe out at least 300 million euros ($358 million) in operating profit, according to the airline.

At Air France, about 55 percent of staff who voted in an online poll rejected the offer made after 13 days of labor action by pilots, cabin crew and ground staff since February. While the outcome of the wage offer consultation isn't legally binding, it will boost the negotiating position of unions at Air France. A majority of labor representatives have to approve any wage deal for it to take effect. Management offered a 7 percent increase over four years, while unions were pushing for a 5.1 percent raise this year.

Macron's Reforms

French President Emmanuel Macron has pledged to overhaul his country's economy. The rail strike has been the focus of the government, which has pushed for less job security for new hires and opening some lines to competition, a blueprint that Macron wants to apply to other areas of the economy. Macron has already pushed through a liberalization of labor law and cut taxes on capital in his first year in office, while future projects include changes to jobless benefits in Europe's second-largest economy.

At Air France, labor representatives were largely unmoved by the CEO's departure, and a strike planned for early next week will probably go ahead.

Union Victory

“The vote is the victory, not the president's resignation,” Air France's CFTC union representative Laurent Le Gall said by phone. Janaillac “attempted to bypass the negotiation framework with this move, and it comes back at him like a boomerang.”

“A bad proposal remains a bad proposal,” Beltran Ybarra, a representative of the main pilots' union, said by phone before the end of voting. Following the announcement of the results, the union said it regrets the resignation of Janaillac.

The move is a personal defeat for Janaillac, whose voice broke at times as he announced the results of what amounted to a companywide referendum aimed at ending the conflict. Unlike his predecessor, Alexandre de Juniac, Janaillac had sough a more moderating approach, seeking to avoid conflict by focusing efforts on the new Joon unit staffed by lower-paid cabin crew, before eventually having to confront pay issues at the main airline.

Worst Outcome

But it wasn't to be, and workers decided instead to press what analysts at RBC called “the self destruction button.” Now without a permanent leader, the task to see Europe's biggest carrier through the next weeks falls to Air France head Franck Terner, who will oversee operations. Janaillac will convene board meetings for Air France-KLM and its French arm Air France on May 9 during which he will submit his resignation, the carrier said.

In his departing message, Janaillac sought to weave in an optimistic tone, saying that he hoped his departure would “trigger a collective realization and a rebound at Air France.”

Analysts, meanwhile, were less upbeat.

“This result is the worst possible outcome of the ballot,” Bernstein analysts including Daniel Roeska wrote in a note. “This leaves the company with no CEO, no labor contract, an ongoing dispute, and likely emboldened unions which will be even less likely to concede on their demands.”

--With assistance from Ania Nussbaum

To contact the reporter on this story: Benedikt Kammel in Berlin at bkammel@bloomberg.net.

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

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