After more than three months without a pilot at the controls, Air France-KLM has appointed a new CEO. The rather sudden departure of Jean-Marc Janaillac came on May 4, just a few days before the company’s annual general meeting – and just after the latest pay deal offered to striking employees was rejected. The subsequent succession process has been one of the corporate sagas of the summer.
Air France-KLM was the product of a merger between Air France and Dutch airline KLM in 2004, which led to the creation of a major global air transport player. The company has quite the diverse shareholder base: the French state is the largest owner with 14.3% of the company’s share capital and over a fifth of the voting rights. It is followed by industry partners Delta Air Lines and China Eastern Airlines with 8.8% of capital each. Employees, meanwhile, are also a force to be reckoned with at the company, with 3.9% and 6.6% of the share capital and voting rights, respectively (down from 6.3% and 10.2% a year ago), and four out of nineteen seats on the sizeable board.
Things actually seemed to start off rather well with the hunt for a replacement; the person specification set out by the board – “an expert of the air transportation sector who could speak French, English and Dutch” –was a demanding one, but one that appeared to satisfy the company’s myriad stakeholders. However, such promising early signs did not last for long. After the news leaked that Philippe Capron, CFO of Veolia Environnement, was one of the front-runners to take over the airline, uproar ensued. Despite his status as an experienced senior executive with strong financial and public policy experience, his lack of experience in the air industry proved his undoing, and he pulled out of the race after being dismissed by both the State and the trade unions.
That unity of opinion was short lived. Five former union representatives penned an open letter to French President Macron, essentially asking the State as shareholder to ‘butt out’ for the sake of the company, and to give the other shareholders room to manoeuvre in selecting a successor. With squabbling breaking out among the different parties, a solution seemed out of reach.
Enter Benjamin Smith. The former COO of Air Canada is a veteran of the air transportation sector, having first joined Air Ontario in 1990 and started his own travel agency in 1993, before joining Canada’s biggest airline in 2002. A younger candidate than some of the other names floated, he also has another potentially vital form of experience on his side – he “has been deeply involved in social dialogue at Air Canada” and he “developed and implemented the historical long-term win-win agreements with the airline’s social partners”. The skill of negotiating with trade unions was a sine qua non for any new CEO given the company’s struggles over the past year, with 15 days of strikes since the start of 2018. After a positive reception following his name being leaked the board announced his appointment as CEO on August 16.
A happy ending… for most. Yet Mr. Smith’s appointment was still opposed by a number of unions due to a new bone of contention: his lack of a French passport. Smith is the first non-French CEO in the company’s history, which is a rarity at French public companies in general – just two of the French-domiciled companies of the CAC 40 are led by foreign CEOs. Unions likely fear that Smith, who is not only non-French but non-European, may not be au fait with France’s working culture, and have expressed doubts that Smith will not “further the defence of our national airline’s interests” and may “deteriorate wages and working conditions”. The long-running concerns that management will prioritise expanding its low-cost, no-frills subsidiaries over investments in its main brand also remain.
So the CEO search saga has come to an end, but Air France-KLM is far from out of the woods. Smith has lengthy negotiations ahead of him, and his own pay package has already caused rumblings of discontent among workers. The company’s numerous stakeholders – the government, workers, shareholders, not to mention holidaymakers – will be eagerly hoping that when Mr. Smith takes office on September 30, he’ll hit the runway running.
Irene is an analyst covering the French market.