Air France-KLM Shares Slump On Surprise Dutch Stake Buy

By Dave Simpson
Air France-KLM Shares Slump On Surprise Dutch Stake Buy

Shares in Air France-KLM fell sharply as the Dutch government amassed a 14% stake in the airline to counter French influence, in a surprise move highlighting tensions over the company's strategic direction.

Air France-KLM shares closed 11.7% lower in European trading on Wednesday February 27, as analysts said the tug of war risked harming the company and its investors.

"Air France-KLM risks becoming a political football between two governments," Liberum analysts said in a note.

Late on Tuesday February 26, Dutch Finance Minister Wopke Hoekstra announced the acquisition of an initial 12.7% stake for €680 million. By the end of Wednesday February 27, it had increased its holding to 14% at a total cost of €744 million, the government said in a statement. That was close to parity with France's 14.3% stake.

The stealth move came weeks after a confrontation between the Dutch government and the company's French-dominated executive board over waning Dutch influence.


France reacted angrily to what Finance Minister Bruno Le Maire described as an "incomprehensible" intervention by the Netherlands. Le Maire will meet Hoekstra to discuss the standoff later this week, officials said, with one likening its behaviour to that of a "corporate raider".

Although Air France and KLM merged in 2004, the KLM subsidiary has always maintained an independent corporate structure within the group.

With The Hague's firm backing, the KLM subsidiary has balked at attempts by AirFrance-KLM group's new Canadian CEO Ben Smith to move toward deeper integration.

Air France-KLM said it would seek to ensure that the Dutch government's sudden arrival as a major shareholder "will not negatively impact the new working dynamic of the group".

While the stake-building appears to have supported the share price over recent days, Liberum analysts said, hopes that the French government would eventually sell its shares now look unjustified.


"Government interference is unwelcome and likely to be contrary to investors' interests," they said.

Delta Airlines and China Eastern Airlines each also hold an 8.8 percent stake in AirFrance-KLM.

"Seat At The Table"

CEO Smith travelled to the Netherlands for an uncomfortable meeting with Finance Minister Hoekstra before an Air France board meeting on February 19.

Sources close to KLM said Smith's dismissive attitude toward Dutch government concerns about the role of Amsterdam's Schiphol Airport likely prompted the government's decision to act.

Hoekstra said buying the stake was a "fundamental step toward protecting Dutch interests", at a news conference called at short notice on Tuesday night in the Hague.


"Buying this stake ensures we have a seat at the table," he said.

Air France this month reported full-year operating earnings of €266 million, compared with €1.07 billion at the KLM subsidiary.

The group has trailed rivals Lufthansa and British Airways on profitability, held back by restrictive French union deals and strikes that last year wiped €335 million off earnings and forced out its CEO.

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