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Air France-KLM's new CEO faces unions' threat of strike

Canadian Ben Smith has also been criticised for being a foreigner

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Ben Smith, Air Canada's operations chief, takes over as Air France-KLM CEO by Sept 30. He is a 19-year veteran of the industry.

Paris

AIR FRANCE-KLM's new chief executive officer got a warning from one of the carrier's labour unions: Satisfy our pay demands or we'll walk off the job again.

Ben Smith, Air Canada's operations chief, will take over as CEO by Sept 30, the Paris-based airline said in a statement on Thursday. He succeeds Jean-Marc Janaillac, who quit this year after failing to end a series of crippling strikes at Air France-KLM.

The airline said it would announce details "as soon as possible" on the post of non-executive chairman.

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Mr Smith will have to cut costs and improve operations in a competitive industry while trying to rein in disgruntled unions, all with the French state looking over his shoulder.

The poisonous atmosphere should come as no surprise: In 2015, a protest of job cuts by Air France workers near Charles de Gaulle Airport ended up with two managers having their shirts ripped off as they were trying to escape. Mr Janaillac staked his job on a staff vote on his plans - and lost.

Vincent Salles, a representative of the CGT union, said in an interview Friday on France Info: "We're still determined to succeed in our demands.

"Yes, there's a strong risk of strikes if Ben Smith isn't capable of renewing a dialogue with the unions of Air France."

Until Mr Smith takes over, Air France-KLM will retain the governance structure put in place after Mr Janaillac's resignation.

Non-executive chairman Anne-Marie Couderc will keep her role in the interim period. In the statement, she called Mr Smith "a man who prefers dialogue" and who has "developed and implemented the historical long-term win-win agreements with the airline's social partners".

Air France shares have lost 33 per cent this year amid the labour strife.

Mr Smith said in a statement: "I am well aware of the competitive challenges the Air France-KLM Group is currently facing and I am convinced that the airlines' teams have all the strengths to succeed in the global airline market."

Recruiting a foreign boss is "inconceivable", nine unions said before the airline's board met on Thursday to select the new CEO.

Labour groups will meet August 27 to decide their next steps in a long-running dispute over pay that has led to 15 days of strikes and lost flights this year.

The unions said they wanted "a responsible leader" steeped in the French model of workplace relations, as well as Air France-KLM's position versus European competitors.

Mr Salles backed off the criticism of Mr Smith's nationality in the radio interview, saying instead that workers are concerned the company will expand its low-cost operations, leading to lower pay for employees.

"He's here to make low cost a bigger part of Air France to the detriment of the main Air France unit, and put in place third-rate agreements that are going to worsen the work conditions and the salaries at Air France," he said.

They cited the administration of US President Donald Trump as evidence of an "economic war" in which national interests are paramount.

"Other countries and governments show fierce protectionism when it comes to their airline," they said. "How in this context, when we know the importance of the economic benefits of a carrier to the rest of society, can Air France be left in foreign hands?"

The unions also criticised the role of Delta Air Lines, saying Mr Smith's candidacy was "being pushed by a competing company".

Atlanta-based Delta is an 8.8 per cent shareholder in Air France-KLM and the two operate a revenue- and cost-sharing alliance on North Atlantic routes.

Mr Smith's 19 years in the airline industry made him a legitimate choice to run Air France-KLM, a senior French government official said before the choice was made. The French state is the carrier's largest shareholder, with a 14 per cent stake.

French Economy minister Bruno Le Maire and Transport minister Elisabeth Borne said in a joint statement: "Benjamin Smith is fully trusted by the state and Air France-KLM's main shareholder to re-establish social dialogues and pursue the great transformation work that will allow the group to meet the challenges of development, competitiveness and international competition."

While the appointment of a foreigner to run an airline might be controversial in France, it is by no means unusual elsewhere.

IAG SA, the owner of Air France-KLM's archrival, British Airways, is run by Irishman Willie Walsh. And UK-based EasyJet, which has grabbed market share on short-haul routes, recently hired Swede Johan Lundgren as CEO.

Mr Smith will need to oversee the possible sale of the French government's stake and repair relations with Dutch division KLM, which has never really formed a cohesive whole with Air France since their 2004 merger.

One of Mr Smith's biggest assets from an Air France-KLM point of view is his success in labour talks at Air Canada. He was chief negotiator in the most recent wrangle with pilots and cabin crew, securing unprecedented 10-year deals with both groups.

Mr Smith is no stranger to management-labour acrimony. He was chief operating officer in 2012 when Air Canada was hit by a series of disruptions as contract negotiations stalled with ground workers and pilots; in March of that year, baggage handlers and ground workers staged a 24-hour walkout, which led to more than 80 flights being cancelled.

A government arbitrator ordered an end to the strike. The next month, several pilots failed to show up for work on the same day in April, resulting in multiple flight cancellations. A government arbitrator eventually sided with Air Canada in its dispute with the pilots, allowing the company to introduce cost-saving measures into the pension plans of new employees.

Mr Smith will resign from his current post from Aug 31. BLOOMBERG