The Netherlands will be alone again on Tuesday. During the shareholders’ meeting of airline Air France-KLM in Paris, the Dutch state will again vote against the million-dollar bonus for CEO Ben Smith. Presumably the only opponent. Just like previous years.
At the previous shareholders’ meeting, in 2021, the Netherlands opposed a bonus of 2 million for the Canadian CEO. Smith received the bonus on top of his salary of 900,000 euros. A bonus of 3.3 million euros is on the agenda for the meeting in a luxury hotel near Charles de Gaulle airport on Tuesday.
“This is not the time to award such bonuses to directors of companies that receive state aid,” Minister Kaag (Finance, D66) wrote to the House of Representatives on 11 May after questions from the SP. The Ministry of Finance manages the Dutch interest in Air France-KLM.
“The crisis and its effects are still being felt,” said Kaag. “A lot of taxpayers’ money is needed to get companies and employees through this.” The minister says he can imagine the social dissatisfaction with the bonus. “The bonus for the CEO of Air France-KLM is incomprehensible and inappropriate.”
According to her, the Netherlands will vote against the bonus. “But we have to be realistic: the Netherlands has 9.3 percent of the shares in Air France-KLM and it is expected that a majority of the shareholders will vote in favour.”
The other major shareholders are the French state (28.6 percent), China Eastern Airlines (9.6 percent) and Delta Air Lines (5.8 percent); 44 percent of the shares are listed. Some sections of the workforce own tufts of shares.
Slowly towards profit
After two tough corona years, shareholders are now expected to have little to complain about. Air France-KLM is recovering from the Covid-19 crisis. The Franco-Dutch aviation group is slowly returning to profitability. That may be in the second or third quarter of this year, the company reported in early May. In any case, ticket sales for the summer are picking up again.
For the second quarter, Air France-KLM expects that the aircraft will be 80 to 85 percent full compared to 2019. In the third quarter, the summer months, the load factor is expected to increase to 85 to 90 percent of 2019. Subsidiary Transavia expects then. even above the level of 2019. Business traffic on transatlantic routes, the most lucrative part of Air France-KLM, would be about 70 percent of 2019.
A point of concern this summer, also in Paris, is the operational problems at Schiphol. Air France-KLM is afraid that it will be just as chaos at Amsterdam airport this summer as during the May holiday. Due to staff shortages at the ground handlers and the security guards, plus the wildcat strike at KLM’s baggage branch, travelers suffered from serious delays and cancellations.
KLM canceled dozens of flights in May to help reduce the crowds at Schiphol. “But we will not do that again,” said KLM president Pieter Elbers in mid-May during a visit to the Airbus factory in Hamburg, where an order for 100 new aircraft was confirmed. “Summer is precisely the period in which we have to earn the money,” says Elbers.
Transavia also reported on Friday that it will have to cancel flights in the near future due to the “erratic” labor market. It would be about dozens of flights† Shareholders can complain in Paris on Tuesday about the negative equity of Air France-KLM. Debts are still higher than assets. But Air France-KLM is also working on its financial health here. Thanks to increased ticket sales, the group was able to reduce debt by 600 million euros to 7.7 billion euros in the first quarter.
KLM already paid back 311 million euros from the emergency package from the Dutch state on 3 May. Of this, 630 million euros is still outstanding. KLM received loans and guarantees of 3.4 billion euros, but ‘only’ used 941 million.
In addition, Air France-KLM announced two initiatives in quick succession last week to reduce its debt. The French logistics group CMA-CGM is likely to take a 9 percent stake in Air France-KLM. The container shipping company, which earned billions during the lockdowns, is taking over part of the shares from the French state. It will become clear on Tuesday whether it is indeed the 9 percent.
On Friday it was announced that the American private equity fund Apollo Global Management is investing 500 million euros in an Air France division that is involved in the management and maintenance of aircraft engines. Reuters news agency cites sources in the company who say that Apollo will not get an equity stake in the aviation group. Apollo is one of the largest venture capitalists in the world and has significant investments in aviation. For example, subsidiary Merx Aviation is active in the leasing and management of aircraft.
Step by step, Air France-KLM is reducing its debts to the French and Dutch state. The group would rather be on its own two feet again today than tomorrow. The lifeline from the start of the corona crisis – when KLM lost 3 million euros a day – has become a problem.
The conditions set by the French and Dutch governments, partly because of European rules, are now starting to get tight. The group is not allowed to make major acquisitions as long as it receives state support, has had to surrender take-off and landing rights to receive support, and has to make significant cutbacks. State agent Jeroen Kremers, who supervises Dutch state aid, is considered a busybody at KLM.
Not yet emission-free
For many shareholders, it will feel like business as usual at Air France-KLM on Tuesday. But that is of course not entirely true. Smith will not receive his 3.3 million bonus because he has taken major steps to make Air France-KLM climate neutral. Like other airlines, the Franco-Dutch company still has many steps to take to be emission-free by 2050.
The company bought up to 100 new Airbus aircraft that are more fuel efficient and quieter than their predecessors – with an option for another 60 aircraft. KLM CEO Pieter Elbers, who will attend his last shareholders’ meeting of the group on Tuesday, signed the official order for the hundred A320neo/321neo aircraft in mid-May.
But these new aircraft do not herald the contraction of aviation, which is necessary according to climate experts, critical politicians and residents of Schiphol. In fact, Pieter Elbers sees the more economical and quieter aircraft as a way for KLM to earn growth from the cabinet. He himself will never experience that again. After thirty years of KLM, Elbers leaves for India. From October 1, he will be in charge of budget airline IndiGo, the largest airline in the country.
A version of this article also appeared in the newspaper of May 23, 2022