Dutch Buy Stake in Air France-KLM to Counter French Influence

(Bloomberg) -- The Netherlands took a 13 percent stake in Air France-KLM Group, in a surprise move aimed at defending its interests and gaining parity with influential shareholder France in the aftermath of a power clash that left the Dutch side of the 15-year partnership weakened.

KLM, the Dutch former flag carrier that was merged with Air France in 2004, and Schiphol Airport in Amsterdam are of great importance to the economy and employment, Finance Minister Wopke Hoekstra told reporters late Tuesday after announcing the investment. He said the government was concerned that decisions on KLM’s strategy more frequently were being made at the level of Air France-KLM’s Paris-based holding company.

“There was simply too little influence from the state in KLM to be able to look after the Dutch public interest well, and to make a success of KLM,” Hoekstra said. “This step shows our long-term commitment to the entire company.”

New Twist

The move risks reigniting tensions between the French and Dutch arms of Air France-KLM, just as pressure was easing from a crisis that threatened the job of KLM boss Pieter Elbers. Elbers stayed, but Smith gained a seat on KLM’s supervisory board and won a more streamlined power structure that sidelined some of the cumbersome committees that slowed decisionmaking but ensured the Dutch side had some parity.

Hoekstra said the Dutch government, which held a 5.9 percent in the local unit before the recent transactions, wants to reach parity with France, which holds a 14 percent stake in the group and is its more powerful shareholder. The group-level stake, which cost 680 million euros ($775 million), will put the Dutch in a position to ask for board seats at the next general meeting.

Dutch Revolt

The threat of Elbers’ departure had triggered an outpouring of support in the Netherlands, where Hoekstra touted his achievements and hundreds of KLM employees demonstrated outside the headquarters to defend their boss. KLM went as far as hiring a public affairs adviser in Paris and launching the #BlueStormRising hashtag to support Elbers. Although Smith -- a Canadian brought in to ease strife among labor and the various stakeholders -- eventually decided to renew Elbers’ mandate, the tensions deepened the rift between the two partners.

Air France and KLM have been operating semi-independently since their merger through a complex arrangement that was meant to guarantee the Dutch government would keep a say in the companies and KLM would keep jobs and business in Amsterdam.

Smith, who took over in September after Elbers refused the job, has made clear he wants the units to operate more like a single company, a move that has been met with resistance from KLM managers and unions who say they fear Air France’s lower profits will drag down their company.

Emerging Nationalism

European governments have intervened more frequently recently in the affairs of major businesses -- countering a 40-year trend toward privatization -- in an effort to protect local champions and respond to the increasingly nationalistic trade policies of the world’s dominant economies, China and the U.S.

The French and German governments lobbied hard to save the rail merger of Alstom SA and Siemens AG’s train unit, which was blocked by the EU. Germany is also looking to orchestrate a merger to keep Deutsche Bank out of foreign hands, and France is looking to delist nuclear power company Electricite de France SA. In Italy, the government is increasing its stake in Telecom Italia SpA and bankrupt airline Alitalia.

For French President Emmanuel Macron, this is the second instance of an unexpected and not-so-friendly move on a French state-held company, after Renault leader Carlos Ghosn’s arrest in November in Japan. The French president, who has had a rocky start in his relationship with Dutch Prime Minister Mark Rutte, is discovering that another European leader can make a move straight out of the dirigiste playbook of Old France, sharpened into an art form by Louis XIV’s finance minster Jean-Baptiste Colbert in the 1600s.

“The Dutch state seems to be implementing the same methods as the French,” said Philippe Waechter, chief economist at Ostrum Asset Management. “The perception of this all is that there is no choice to have an influence over what is seen as strategic assets but to own parts or all of these assets."

Macron, a former economy minister who nationalized a shipyard weeks after taking office as president in 2017, is all too familiar with seeking influence in a company to protect national interests. He’s also pledged to disengage from holdings that the state should no longer have a say in. France is planning to sell its stake in the ADP, the Paris airports operator, while keeping an oversight role through regulation.

But the Dutch move, which he was informed of in a planned call with Rutte held on Tuesday, wasn’t expected.

A French official in Macron’s office told Bloomberg on Feb. 19, just before the Dutch started buying the stake, that the French saw no need to change voting rights for the states and hadn’t thought about it. The official, who can’t be named according to Elysee palace ground rules, also said it was “legitimate” for Rutte and the government “to follow” what was going on at Air France - KLM, but that the Dutch leader and Macron had not discussed it recently.

Air France-KLM’s board and the French government weren’t informed of the Dutch purchase in advance, French Finance Minister Bruno Le Maire told Les Echos on Tuesday. He said he reaffirmed his support for Air France-KLM management and said it is “essential to respect the principles of good government” without national interference.

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