Symptoms of a bad marriage

May 2004. With one hit on the gong of the Amsterdam Exchange, the formation of Air France-KLM has been made a reality, with the CEOs Leo van Wijk and Cyril Spinetta leading the operation. The merger created a cross-border European airline and furthermore a prominent SkyTeam-Alliance, equal to the Star Alliance and OneWorld,  who were created in 2000. Reasons for the merger given by the board were: enlarging the market share whilst also giving the customer a global travel network. Although that might have been an appealing advantage for both parties, the main reason was of course the weakened position of KLM, which is the oldest airline in the world acquired after the failed merger with the airline Alitalia, and the partnership with British Airways. KLM certainly didn’t want to suffer the same fate as the Belgian Sabena and Swissair, who both declared bankruptcy in 2001. After the unification with Air France, KLM could again look toward a bright future.

With that being said, negotiations for the merger were nothing to write home about and the eventual contracts seemed more like a solidified distrust than solidarity. Because the agreements within the contracts would only hold for a mere 8 years, the companies had to renegotiate in 2012, this time done by minister Camiel Eurlings. As opposed to the initial 26-page agreement, minister Eurlings presented three paragraphs, which meant that some vital interests of KLM would be lost in the new agreement. The 6 percent interest in KLM that belonged to the state was no longer mandatory, nor was the balanced growth between both the Parisian airport Charles de Gaulle and Schiphol. This would’ve meant a disastrous fate for the much smaller KLM because Air France could hollow out Schiphol and thus KLM whilst enlarging the amount of travel at their airport. This luckily didn’t happen because of the large amount of losses Air France suffered after the financial crisis of 2008. Relative to Air France, KLM did quite well between 2008 and 2014. Both companies did suffer from increasing competition.  European flights were partially taken over by budget airlines and the Emirates took an interest in intercontinental travel.

Even though there was  increased competition, Schiphol had a 33% increase in passengers between 2004 and 2018 and Charles de Gaulle had a 10% decrease. Due to this inequality, and the fact that minister Hoekstra increased the state interest in KLM, the French have had numerous altercations with the Dutch government. Reason for minister Hoekstra to acquire 14 percent of the shares in Air France-KLM was the difference in policy between the French and Dutch government. Hoekstra didn’t think the public interest was served correctly, in contrast to the French citizens. He substantiated this by stating that the 10% interest in Air France-KLM, acquired by Delta Airlines and China Easter Airlines in 2017, went unnoticed by the Dutch cabinet. The possible acquisition of the state interest in Air France-KLM of the French government, by hotel chain Accor, went unnoticed as well.

The more interesting aspect of the discussion is the way minister Hoekstra acquired the shares. After he informed the cabinet of his plans, as well as a small group of representatives who had to sign a confidentiality agreement, he went to the ABN bank for further inquiries concerning the strategy. They selected Maarten Blomme, a seasoned trader, to handle the acquisition of the shares. Because of the high level of secrecy, Blomme couldn’t directly inquire about potential sellers. Because of the small number of major shareholders in KLM, he quite easily found half of the required 14 percent interest Hoekstra wanted. The other half he acquired by simply buying it himself. This was possible because of the 10K report that had just been published by Air France-KLM, which resulted in a volatile period for the stock. The only problem was the short timespan of 4 business days Blomme had, because of the laws made by the French SEC, which states that one needs to notify them of an acquisition amounting to 5 percent or more in any company.

The agreements that were made last month were jeopardized by the news. Yet the emotions have subsided at least for now.

 

Sebastian Cornielje