Air Transport World

Mariage de Raison: Air France and KLM face significant challenges to creating a new global airline leader but are confident they can be overcome.(Strategy)

A Dutch newspaper was rather cynical about the engagement between KLM Royal Dutch Airlines and Air France: "The merger surely prevents the demise of KLM, the oldest still operating airline in the world. But an emancipated marriage it won't be."

Of course emancipation is difficult when the partners are on such unequal footing. Air France Group, which is paying about 800 million [euro] in its own stock to take control of KLM, is twice the size of its Dutch counterpart in terms of revenue, aircraft and passengers carried. The discrepancy is even larger on the accounting ledger: AF earned 120 million [euro] in the fiscal year ended last March 31 against a loss of 416 million [euro] for KLM. And whereas KLM expects to be in the red again for the current year, AF still sees a possibility for profit.

Transcending these concerns are those of "compatibility. For example, French and Dutch management philosophies are poles apart, notes Huib Wursten, partner at ITIM, a Stockholm-headquartered consultancy in intercultural management. "The Dutch model of consensus and the French model of line management don't combine well," he explains. "In France it is accepted [that] management makes a decision and it's up to management to communicate top down how to implement that decision." The Dutch model "is exactly the opposite. Leadership is associated with bringing together all different stakeholders and coordinat[ing] all different interests. There is no way a decision which is not fully supported by all stakeholders will work in a Dutch company.

"They are very unequal and very different partners," states Prodomos Dagtoglou, president of the European Air Law Assn. "KLM has always been a private company while Air France has always been state controlled and subsidized. Its work ethic and trade union tradition belong to a very different culture from that of KLM, whereas their networks overlap to a great degree, too great for avoiding in the longer run rationalizing measures, including far-reaching redundancies, despite opposite announcements. Considering that airline mergers hardly ever work as such, what are the chances of a merger in these circumstances?"

Cross-border airline mergers do not have an enviable track record. But times have changed, says AF President and COO Pierre-Henri Gourgeon, who joined the group in 1993 after having been DG of the French CAA. "The European Court of Justice ruling in November 2002 and the mandate given in June 2003 to the European Commission to negotiate the open sky agreement with the US set the scope for a complete liberalization of European air transport. …

Log in to your account to read this article – and millions more.