French Government May Sell 14% Stake in Air France-KLM

Air France-KLM could be facing more turbulent times ahead as the French government has apparently mooted the potential to sell their 14% stake in the group.

The new CEO has stated that the government was indeed prepared to consider an Air France KLM sale. The Air Canada ex-CEO Benjamin Smith commented that there were ‘plenty of other areas the government needs to spend its money on’.

The government has already been quoted as saying that the loss making airline ‘will not be bailed out’ by the state. With first quarter losses of €269m, the future of Air France-KLM is not looking at all rosy.

A difficult year

During the first six months of the year, Air France-KLM reported pretty awful profits, down 81.6%. Equating to a loss of €89m, the airline put he situation down to a variety of issues, including French strikes and rising fuel costs.

The untimely exit of the airline’s CEO, Jean-Marc Janaillac, in May this year left the carrier in a state of limbo for several months, with no permanent CEO appointed for many months.

However, the eventual appointment of Smith as a new CEO in August has improved the outlook for the group. Despite the struggles faced by Air France-KLM, Smith was keen to take the job and apparently has some pretty drastic strategies up his sleeve for improving the future of the airlines.

In a message to staff in September, Smith pledged to invest half his salary in the company’s stock as a demonstration of his confidence in the future of the carrier.

“I have already made a personal investment by moving with my family to France,” he said. “Today I have decided to make another investment by investing half my fixed salary in Air France-KLM’s share capital.”

He claimed this move was a way of ‘demonstrating confidence in their future success’. Well, with a flat rate salary of €900,000 and on target earnings potential of as much as 4.25m, he can afford it.

Will the Air France KLM sale go ahead?

Following quotes in the Financial Times pertaining to the French government looking at selling their stake in the carrier, Economy Minister Bruno Le Maire took to the media to reaffirm their commitment to the airline.

In an interview with France Info radio, Le Maire said,

“There is no question — it is not the road map for Ben Smith — of liquidating the state’s stake in Air France. It is not one of the options on the table today.”

He continued by saying that it would be ridiculous of the state to consider an Air France KLM sale at a time when the airline is undergoing tough reforms. The poor shape of the current share price would make the French government a ‘poor manager’ of its holdings if it went ahead with a sale right now.

So far in 2018, shares in Air France-KLM are down 40%, although last week saw a small rise of 1.6% as Smith officially took the helm at the struggling company.

Other significant holdings in the group include China Eastern Airlines and Delta Airlines, both at 8.8%.