Air France's plans to conquer European skies with a budget carrier have run into severe turbulence as its pilots insist on what they regard as an inalienable right: a generous contract, reports The Wall Street Journal.
As of late Thursday—and 11 days into a strike that has forced Air France to cancel more than half its flights and caused a daily operating loss of about €20 million ($25.6 million)—management and pilots were still at loggerheads.
The French airline, part of the unprofitable group, wants to muscle up its small, no-frills unit Transavia to counter the rapid expansion of low-cost rivals such as easyJet and Ryanair.
But pilots, who under a 2007 bargaining agreement have a say in the number of aircraft Transavia can operate from France, rejected the plan. They say they won't agree to lift the current cap of 14 planes at Transavia unless all cockpit crews - salaried by the flag carrier or the low-cost unit - get Air France pay, benefits and perks, including access to subsidized gourmet canteens at Paris's airports.
Alexandre de Juniac, the chief executive of Air France-KLM, says that is a non-starter. "It's impossible to develop a low-cost airline with the conditions of a legacy carrier," he told reporters last week.
The turnaround effort at Air France illustrates the challenge of belt-tightening at a company which long carried the promise of ever-ascending benefits.
Mr. de Juniac's success or failure could have a deep impact because the airline is strained by labor and financial tensions also at play broadly in France.
Like Air France managers, a growing number of French executives say they find themselves with their backs against the wall because the productivity of French workers has eroded dangerously vis-à-vis that of employees in many other euro-zone countries, especially Germany- France's main trading partner.
Fifteen years after the creation of the European common currency, many business leaders say it is no longer attractive to produce in France. They blame the country's long holidays, and its bighearted health-care and pension systems.
French companies have welcomed a government plan aimed at restoring the country's attractiveness, but say they need to move faster at a time when unemployment exceeds 10%.
The call for productivity gains is causing a deep malaise among workers wary of losing essential parts of the French social model.
"Nobody's giving us the big picture," said Air France flight attendant David Lanfranchi, who doubles as worker representative for the SNPNC cabin crew union. "Is the plan to take to pieces the working standards, the benefits, the sense of stability that we've created over the years?"
In the mid-2000s, Air France faced rising competition from low-cost rivals, which demanded far higher productivity from their personnel, and outsourced most ground operations. Jean-Cyril Spinetta, who led Air France at the time, says he was "convinced" the cost difference would narrow quickly, as soon as easyJet's staff would seek higher pay. He concedes that didn't happen, in part because of laws governing employee welfare.
"We underestimated the extraordinary large disparities of social legislations across Europe," Mr. Spinetta, now Air France-KLM's honorary chairman, said in a recent interview.
The global financial crisis left Air France-KLM badly bruised. By late 2011, net debt had more than doubled to €6.5 billion from €2.7 billion in 2008. Some investors were asking if Air France was going to be the next Eurotunnel - the Channel tunnel operator whose chaotic financial trajectory in the mid-2000s left shareholders ruined, Mr. Spinetta recalls.
Air France shuffled its management in late 2011, appointing Mr. de Juniac. The new CEO, who had been chief of staff of Christine Lagarde when she was French finance minister, swiftly quashed any hopes the French state—which has a 15.9% interest in Air France-KLM—would come to the rescue. "The state coffers are empty," he told staff in January 2012, according to people present. "I know it because I sat on them for long enough time."
Shortly afterward, the airline convened a works council at its Roissy airport headquarters to inform staff representatives about restructuring measures. The meeting didn't last long. Punctuating their chants of "This is our house, this is our house" with fog horns, Air France employees overwhelmed a cordon of riot police, stormed the room, and kicked managers out.
Despite the rough start, Mr. de Juniac eventually secured - in several stages between 2012 and 2013 - the signatures of pilots, cabin crew and ground staff at the bottom of a three-year cost-cutting plan. By the end of 2014, Air France aimed to eliminate over 8,000 jobs, nearly 15% of its workforce.
Those who stayed agreed to work longer hours, accepted a salary freeze, and waved goodbye to some paid holidays. In the air, flight attendants also agreed to roll up their sleeves, dashing through the cabin with plastic bags to collect trash instead of winding through the aisles with trolleys.
One sticking point was left aside: how to increase the fleet of Transavia, the low-cost unit, without infuriating Air France pilots.
Read more of this report from The Wall Street Journal.