Air France and KLM merged in 2004 but continue to operate largely separately, while the French arm in particular has struggled with industrial action in recent years (LIONEL BONAVENTURE)

Paris (AFP) – A fight for influence over the fate of Air France-KLM blew up into a diplomatic spat between France and the Netherlands on Wednesday, after Dutch authorities secretly bought a major stake in the airline to stave off a suspected attempt to consolidate more operations in France.

The conflict poses a tricky new challenge for Ben Smith, a Canadian who became the first non-French leader of the airline last September following months of strikes that cost the previous CEO his job.

Dutch Finance Minister Wopke Hoekstra announced the stealth purchase of a 12.7 percent stake late Tuesday, saying the government aimed to eventually match the French government’s own 14.3 percent holding.

“With this share purchase, the Dutch cabinet wants to be able to directly influence the future development of Air France-KLM in order to optimally ensure the Dutch public interest,” Hoekstra said.

Concerns have been growing in the Netherlands that Smith is looking to shift more KLM flights to Paris from Amsterdam’s Schiphol airport in a bid to better compete against Lufthansa and also IAG, the owner of British Airways and Iberia.

“KLM’s position has been constantly eroded over the past few months,” Hoekstra added. “We now have a seat at the table.”

The move caught the French establishment off guard.

“The government was not informed of this decision, nor its implementation. I take note of it. It’s now up to the Dutch government to clarify its intentions,” President Emmanuel Macron said at a press conference in Paris.

Finance Minister Bruno Le Maire said he would hold talks with Hoekstra in Paris this week over what he termed an “incomprehensible” move.

“I consider that there is strength in union, and in the aerospace sector we have to consolidate our positions, and I believe it’s always better to pursue this consolidation with transparency and trust,” Le Maire said at a press conference.

The prospect of a full-blown management battle sent investors fleeing, with Air France-KLM shares plunging well over 10 percent in afternoon trading.

– Simmering tensions –

The Dutch move comes a week after the airline posted a surge in net profit to 409 million euros ($465 million) last year, up from just 163 million euros.

But most of that growth was thanks to KLM, whose operating profit of 1.1 billion euros far outstripped the 266 million at Air France, which was hit by a series of costly strikes over pay.

Dutch worries intensified during recent wrangling over the fate of KLM chief executive Pieter Elbers, after doubts arose over whether he would keep his job.

Dutch media had reported that Smith considered Elbers “difficult”, and the Dutch government eventually stepped in to back his reappointment after KLM workers threatened to go on strike if he were axed.

And Dutch Infrastructure Minister Cora Van Nieuwenhuizen has recently warned against any reduction of flights at Amsterdam’s Schiphol airport.

She said besides the risk of lost jobs, the Netherlands could see its ability to attract foreign companies and investments curtailed with a major airport hub.

Dutch Prime Minister Mark Rutte also stressed this month that “KLM was extremely important to the economy of the Netherlands”, and that it was “essential that it should be well run”.

According to Dutch daily De Volkskrant, Rutte personally called Macron to inform him of the stake purchase — but only after it was completed.

– ‘Transparency and trust’ –

The Air France-KLM board, hastily convened on Wednesday, issued a statement after its meeting saying it would “closely monitor the consequences” of the Dutch shareholding, and ensure that it did “not negatively impact the new working dynamic” recently put into place by the company’s CEO.

Analysts at the French bank Societe Generale, meanwhile, said Dutch officials would probably now ask for additional representation on the airline’s board. 

“The aviation sector is extremely competitive, and the only goal, in case our only goal, is to reinforce Air France-KLM’s competitiveness,” Le Maire said Wednesday.

“I consider that there is strength in union, and in the aerospace sector we have to consolidate our positions, and I believe it’s always better to pursue this consolidation with transparency and trust,” he added.

But the head of the CFE-CGC Air France union, Bernard Garbiso, termed the Dutch move “chauvinist”.

“It’s not a good thing to have KLM trying to take power away from Air France,” he said.

“One shouldn’t forget that, once upon a time, it was Air France which allowed KLM to be saved,” he added.

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