Last week I covered attempts by new Air France KLM CEO Ben Smith to unify the two carriers and end KLM’s independence.
Air France was partially privatized in 1999. As part of its acquisition of KLM in 2004, the French government’s stake in the combined carrier was reduced from 54.4% to 44%. The deal made the group the world’s largest airline by revenue.
The acquisition of a flag carrier was controversial, and not only did it require the French government giving up majority control but commitments were also made regarding KLM’s independence. To this day KLM has its own CEO, the independence of whom new group CEO Ben Smith, who came over from Air Canada, apparently bristles at.
The ownership structure of the business is complicated to say the least.
- Air France KLM owns 100% of Air France, but only the full economic rights at KLM.
- The voting rights at KLM are 49% controlled by Air France KLM
- 50% of KLM voting rights are split between Dutch foundations and the Dutch government
My understanding is that the head of Air France KLM — and indeed the Air France KLM board — does not have full control over the appointment of KLM officers.
Copyright: flaperval / 123RF Stock Photo
There’s a clear campaign afoot to push out KLM’s independent CEO by Smith, the group CEO. However Lucky at One Mile at a Time writes that KLM’s CEO is so popular with employees that it’s a problem because it’s hard for Ben Smith to push him out. Over 70% of KLM employees (25,000) signed a petition demanding the group keep him on as KLM CEO.
Skift‘s Brian Sumers meanwhile writes ‘it’s time to let Air France KLM’s new CEO take charge’ concluding “Smith is the CEO and he deserves freedom to name his own team.”
I don’t have a dog in this fight. I do not know Pieter Elbers. However he has been making the group money, and by all accounts he is an excellent leader. The largest shareholder of Air France KLM is the French government, and they ultimately chose their first non-Frenchman to lead the company. However many accounts suggest that had Elbers not come from the KLM side he’d have been the obvious choice.
Contra Brian Sumers, I see Ben Smith’s role as serving the group’s shareholders, and as a starting point the executive responsible for the division that’s been making all of the money at the company probably shouldn’t get pushed out in the name of ‘freedom to name his own team.’ Ultimately that’s what often happens, it’s difficult at this point for Smith to essentially fire (not renew) Elbers. But that doesn’t mean they don’t work out some sort of payment that makes it advantageous for Elbers to leave. That’s unlikely to benefit the morale at KLM, political support in the Netherlands, or group profitability. But it is what it is.
So to Lucky’s point it is only clearly a problem that Elbers is profitable to Ben Smith, and not necessarily to the business. Ultimately Smith may or may not have enough political capital to do what he wants, if he tries and fails he’s undercut his viability early in his time running the company and that could have long-lasting effects. That alone may essentially for others to back him. But the decision should be based on what’s best for the long-term profitability of the business.