One
day I'll fly away
Leave
your love to yesterday
When the merger between the national airliners of
France and The Netherlands, Air France and KLM, was communicated in 2003 and
2004, the news was brought with the usual mixture of:
- Boasting;
- Denial of existing issues at hand;
- Remaining silent about the more practical reasons for the merger (i.e. reasons of the kind that nobody wants to hear);
- Unfounded optimism and wishful thinking regarding the more remote future for both brands.
The announcements in the media contained the usual expressions
like: “great opportunities…, two strong brands will become one even stronger
brand…, global leaders…, dramatic increase in flying destinations…, synergy…
and win-win situation”.
Well, you know the drill, don’t you?!
In 2003, it was a few years after the devastating attacks upon
the Twin Towers in New York and the Pentagon in Washington. These terrible events were the direct cause for the demise of PanAmerican airlines (PanAm) and left their
scratchmarks within the whole aviation industry.
In those days there was a considerable consolidation operation
going on within the aviation industry. Therefore it seemed not such a bad idea,
that two (formerly) strong brands with some serious issues to tackle in their
daily operations, joined their forces. However, only the most naive souls will have genuinely believed
that this was indeed a merger between two quite strong parties and not the ‘de
facto’ take-over of KLM, that it will prove to be in the end.
Air France,
although business-wise a company that has been in trouble for already quite a long time, will
prove to be the strongest and most influential partner of the two. It is the
biggest partner in size, with the biggest domestic market AND it has the full force of the French government behind
it.
In the beginning KLM might have been the healthier of the two companies, but in the end that just won’t count. Just like it did not
count in the days of 1999 when ‘long-term problem child’ British Steel took
over the Dutch ‘pearl in the shell’ Koninklijke Hoogovens – combinedly forming Corus
Steel – and subsequently started to use Hoogovens’ profits to cover up
the losses of BS itself.
Although the Dutch government made some ‘brave’
attempts to a. warrant the connection between KLM and its domestic hub Schiphol for the future and b. tried to protect the Dutch jobs and economic interests offered by KLM for quite a
long period of time, it seems that their attempts have not exactly been rock-solid in character.
This morning, the Dutch newspaper De Volkskrant had an
excellent scoop. The journalists Wilco Dekker and Eric vanden Outenaar wrote a
very interesting article regarding the flawed sturdiness of the Dutch
State Guarantees on behalf of KLM and Schiphol.
And on top of that, they also presented a PDF-copy of the
special clause in the 2003 contract between KLM and Air France, which
dealt with the original state guarantees, as well as a 2010 prolongation contract
between Dutch Transport Minister (2006-2010) and KLM executive-to-be (nudge nudge…, wink wink…) Camiel
Eurlings.
Both documents were acquired by the Volkskrant using
the Dutch version of the Freedom of Information Act (i.e. Wet Openbaarheid
Bestuur or WOB).
Here are the pertinent snippets from the Volkskrant
article:
State
guarantees for Schiphol and KLM appear to be futile
The
state guarantees for KLM and Schiphol appear to have been nearly futile from
the very beginning in 2003, when the merger with Air France commenced.
On top of that, the
Minister of Traffic and Waterways has dropped the most concrete guarantees,
when the special state guarantees clause in the merger contract was prolonged
and renegotiated in 2010.
This made it possible for the executive
management of Air France-KLM to abolish KLM-flights from Schiphol or transfer
these flights to French airport Charles de Gaulle.
 |
| Twitter-discussion between me and the authors of this article in De Volkskrant Click to enlarge |
My
comments: Today, I had
an interesting Twitter-discussion with the authors of this article, about the
statement in the red & bold text (see the aforementioned Twitter-screenshot).
I read the sections 2.1 (iii) and 2.2(iii) of the aforementioned special
clause, containing the most concrete guarantees as mentioned in
the Volkskrant article, and also the rest of it, meticulously.
With respect to these particular sections, the preface of the special clause already mentioned that the arrangements in these sections would legally mature exactly five years after the merger had been finished (i.e. in May 2009). The other sections of the special clause would come to an end exactly eight years after the merger had been finished (i.e. in May 2012).
In my personal opinion, the earlier maturity date of these fairly concrete sections 2.1 (iii) and 2.2(iii) had been a strategical mistake of Eurlings' predecessor Minister Karla Peijs of Traffic
and Waterways. To this respect Minister
Eurlings had done nothing ‘wrong’, regarding the aforementioned
sections: they had already matured legally when he was demanded at the negotiation table by Air France-KLM, in 2010.
Eric vanden Outenaar argued in the aforementioned tweet,
however, that Eurlings should have repaired (i.e. prolonged) those already
matured sections 2.1 (iii) and 2.2(iii), instead of leaving them as-is. I do sympathize with Eric
and Wilco in this matter, but won’t call it a real mistake of Eurlings after all.
When
KLM and Air France merged in 2003, the Dutch government demanded a guarantee
package, which was meant to uphold thousands of jobs at KLM and Schiphol and maintain The
Netherlands as a popular hub for airliners. Besides that, the growth of one airport
(read: Charles de Gaulle) should not come at the expense of the other airport
(read: Schiphol) and vice versa.
Yet, the composition of these state guarantees, demanded by the Dutch government, was quite vage and ambiguous, as it is disclosed now in the official special clause.
Until
now, both the airports are doing fine and there seems little to be wrong. As a matter of fact, Schiphol
seems to be doing even better than Charles de Gaulle.
However, the
signs for the cargo division of KLM have strongly deteriorated, as it was
disclosed in a recently published evaluation. Almost all cargo activities of
KLM-subsidiary Martinair have been cut down, with as a consequence a
considerable loss of jobs. On top of that, company parts within KLM’s head office have
been moved from Amstelveen to Paris.
According
to aviation economists, the massive competition will force the merged airliner
to reorganize its business and operate it from one single location. There is a considerable
chance that KLM and Schiphol will not win this struggle against Air France / Charles de Gaulle, as France has a much larger
domestic market.
By
itself the guarantees have little value: they are solely a declaration of
the intention to let Schiphol grow, according to various pundits that have
been inquired by the Volkskrant.
Apart from the agreement that KLM will remain an
independent airliner with The Netherlands as its main hub, three guarantees
have been negotiated. In the first two, Air France-KLM promises to operate from
two airports and states that it tries to enable growth on both locations; however, without mentioning concrete targets.
In
the third guarantee (mentioned in sections 2.1 (iii) and 2.2 (iii) – one section for cargo and one for passenger traffic), there had
been some (disguised) targets – concrete destinations and a balanced development. However, these third guarantees, for passenger traffic as well as cargo traffic, have
been striken out in 2010.
As I mentioned before, I have read both the special clause containing
the Dutch state guarantees from 2003 and the renegotiated contract from 2010
meticulously and I advice my interested readers to do that too.
It is vagueness
and good intensions, but also escape routes, all the way, in my humble opinion. Those two challenged sections 2.1(iii) and 2.2(iii), matured in 2009, for instance also stated:
For
the avoidance of doubt, this does not prevent the Combination to take any adaptive measures
in case of and for the duration of a crisis.
In other words: from the beginning the combination Air
France – KLM already had the right to overrule this so-called warrant for the
growth of Schiphol, in case that a crisis would occur; whatever that may be for
the executives of Air France-KLM. This was definitely an escape route to avoid the Dutch state guarantee, whenever deemed necessary.
Personally, I see hardly any possibilities to "re-renegotiate" these contracts for State Secretary Wilma Mansveld of
Infrastructure and Environment, who is now responsible for Schiphol.
The current situation of Air France – KLM is simply too challenging for the French
to give much leeway to the government of The Netherlands in their attempts to
save either KLM or Schiphol. When deemed necessary, the French will play for keeps and abandon Schiphol if they have to.
And that puts the spotlight on
a prediction which I made in an article written in June, 2013:
Air
France is definitely the top dog within the merged aviation
company Air France-KLM. When the going would get even tougher for Air France-KLM than it
already is today, there is a considerable chance that the French / Dutch
aviation company would abandon Schiphol as one of its main hubs and would
exclusively operate from French airport Charles de Gaulle.
Ergo:
when Air France-KLM would leave Schiphol, it would be ‘the end of the line’
for this self-acclaimed ‘mainport’.
These
are the main reasons that I look at Schiphol’s expansion plans with hardly
concealed mistrust.
I
agree with everybody that aviation is an important economic and strategic
factor for a country, for Europe and for the world in general. I don’t want to
deny this fact through this article. I also don’t deny that aviation will grow
further in the coming 10 - 20 years.
However,
with all these plans still in the loop for new commercial airports all over
Europe and for the expansion of existing airports, the people should remember
that aviation is one of the least profitable businesses in the world.
I think that it’s very good that De Volkskrant has
disclosed these very vague state guarantee contracts regarding KLM and Schiphol
and put a bright light upon them.
However, in future situations, when foreign parties again
want to take over nationally important (stateowned) companies, we will probably
see similar vague and open-ended contracts, full of escape routes for the foreign party
taking over the Dutch company.
Government parties are seldomly the smartest and toughtest
guys at the negotiation table. Especially not, when everybody in the Dutch
government wants to succesfully finish such a merger, in order to save the
future of one of the ‘crown jewels’ of The Netherlands.
So the conclusion of all this could be: first comes the
Champagne and afterwards the tears!
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