Paris

AIR France-KLM has started talks with unions to reduce staff as part of a restructuring to be unveiled in the coming months - a plan that also calls for a 40 per cent cut in domestic French capacity by the end of next year.

The company's Dutch arm, KLM, has already set in motion a voluntary departure plan for all employees starting June 1, chief executive officer Ben Smith told shareholders on Tuesday at an annual general meeting. A "similar project" is under discussion with labour unions at Air France that would also encourage employees to move to Paris from French regions.

A voluntary scheme may not be enough to turn around the French division, which will undergo an "accelerated overhaul" to meet tougher environmental targets and reach break-even next year, Mr Smith said.

Air France-KLM is reeling from a steep drop in demand from the coronavirus pandemic, and is still in talks with the Dutch government for as much as four billion euros (S$6.2 billion) in loans and guarantees after getting seven billion euros from France. In exchange, Mr Smith has pledged a revamp at Air France that will cut back on domestic flights including on routes served by rail.

On Tuesday, the CEO said the increasing prevalence of video conferencing and employees working from home could become more entrenched throughout the economy, hurting business traffic and making a revival of the airline industry even more difficult.

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"Recovery of capacity and demand remains uncertain," he said. "Recovery is expected to be slow, around two to three years aT most."

The carrier will also delay entry into service of some Airbus SE A350 jets and Boeing Co 787 planes, and could pull some additional wide-body aircraft if needed, he said.

While the proposed compensation for Mr Smith for 2020 was approved by shareholders on Tuesday, the Dutch government voted against a resolution due to opposition to bonuses during the crisis. BLOOMBERG