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Air France-KLM shares fell by 4% Friday, just one day after the flag carrier of France announced the appointment of new CEO Benjamin Smith. Economists are attributing the stock drop to the airline’s employee unions which responded with open hostility over the decision to appoint Smith, a Canadian, who would be the first non-French person to lead the airline. (It now includes Dutch flag carrier KLM.)

“Driving the share price is essentially the discontent of the unions,” said Meriem Mokdad, fund manager at Paris-based Roche-Brune Asset Management.

Air France has already been plagued with a series of strikes that began in early February, and which have cost the airline more than $380 million, with shares down by 36% since the beginning of the year.

Although French bank Société Générale maintained its “sell” recommendation on Air France-KLM shares, it welcomed Smith’s appointment on the basis of his success at Air Canada. He “played a key role in Air Canada’s growth and modernization strategy in recent years, redefined AC’s hub strategy and was also a driving force behind AC’s successful low-cost brand Rouge,” SocGen wrote in a research note titled “New CEO – New Solutions to Old Problems.” The bank further noted that the previous CEO of Air France had met with similar union resistance two years ago when he took up the leadership mantle, and cautioned Air France employees to proceed more cautiously this time. “We hope that history won’t repeat itself — otherwise having a non-French CEO will be the least of the group’s and the (French) employees’ worries.”

French workers, who will discuss another round of strike action on August 27, aren’t the only unhappy employees: Dutch pilots, under the KLM arm of the group, threatened to strike over working conditions as well. On August 13, KLM released a statement saying that “Regrettably, negotiations are in a difficult phase” with Dutch Airline Pilots Association VNV over “desired reduction in work pressure and improvement of the work-life balance of pilots.” VNV has threatened to strike in as soon as four weeks if the pilots’ requests are not met, and has demanded that KLM hire new flight personnel as soon as possible in order to allow pilots more time off between flights. However, KLM stated that, although the airline has already begun recruiting new pilots, it cannot meet all of the pilots’ demands.

Air France and KLM formed the “first major cross-border airline merger” in 2003, although the two airlines have always maintained independent operations. While KLM had been struggling at the time of the merger, the Dutch airline has been more successful at cutting costs in the 15 years since. KLM recently was able to negotiate several cost-cutting deals with employees which have bolstered the airline’s profitability, putting the carrier in a stronger position than its French counterpart.

“Our pilots have given up a lot in recent years, making KLM profitable”, VNV spokesman Joost van Doesburg said. “Now it’s time for KLM to deal with its exhausted staff.”

Featured image courtesy of KLM

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