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Aug 16, 2018

Air Canada exec named new Air France-KLM CEO; unions bristle

What’s next for Air Canada as it loses a top exec

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Air France-KLM named Air Canada’s Ben Smith as chief executive officer, casting aside union objections to entrust a foreigner with turning around Europe’s biggest carrier by passenger traffic.

The new CEO will take the reins by Sept. 30, the Paris-based airline said in a statement Thursday. Smith, currently Air Canada’s operations chief, will succeed 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.

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. Janaillac staked his job on a staff vote on his plans -- and lost.

“I’m sure he has an idea of the magnitude of the challenge,” said Chris Tarry, a U.K.-based aviation consultant. “Would I book a long-haul flight on Air France? It’s a question, because there’s a risk they’ll be on strike.”

‘Competitive Challenges’

Until Smith takes over, Air France-KLM will retain the governance structure put in place after Janaillac’s resignation. Non-Executive Chairman Anne-Marie Couderc will keep her role in the interim period. In the statement, she called Smith “a man who prefers dialog” who had “developed and implemented the historical long-term win-win agreements with the airline’s social partners.”

Air France has tumbled 33 per cent this year amid the labor strife. The shares closed up 1.5 per cent at 9.05 euros Thursday in Paris, before Smith’s appointment was announced.

“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,” Smith said in the statement.

Recruiting a foreign boss is “inconceivable,” nine unions said before the airline’s board met to select a new CEO. Labor groups will meet Aug. 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.

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    Delta Stake

    They cited the administration of U.S. 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 criticized the role of Delta Air Lines Inc., saying 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.

    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.

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

    Foreign CEOs

    While the appointment of a foreigner to run an airline might be controversial in France, it’s by no means unusual elsewhere. IAG SA -- owner of Air France-KLM’s archrival, British Airways -- is run by Irishman Willie Walsh. And U.K.-based EasyJet Plc, which has grabbed market share on short-haul routes, recently hired Swede Johan Lundgren as CEO.

    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 Smith’s biggest assets from an Air France-KLM point of view is his success in labor 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. Janaillac, and before him Alexandre De Juniac, resisted demands for higher pay at Air France, prioritizing investment in planes to compete with Persian Gulf carriers and low-cost specialists in Europe.

    Smith is no stranger to management-labor acrimony. He was chief operating officer in 2012 when Air Canada was hit by a series of disruptions as contract negotiations stalled with labor groups such as ground workers and pilots.

    ‘Significant Contributions’

    In March of that year, baggage handlers and ground workers staged an impromptu walkout that lasted 24 hours and led to more than 80 flights being canceled. 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.

    Smith will resign from his current post effective Aug. 31.

    “I thank Ben for his significant contributions in many various roles at Air Canada over the past two decades,” CEO Calin Rovinescu said in a statement. “Our deep and highly experienced leadership team will continue to deliver on our global ambitions, achieve our targets and drive our operational performance well into the future.”