Dutch KLM unions see no way out of marriage with Air France

AMSTERDAM (Reuters) – Dutch union representatives said KLM would have to stick with its partnership with Air France even though the French airline is under increasing pressure from strikes.

Air France shares fell more than 10 percent on Monday after the airlines CEO Jean-Marc Janaillac said he would resign over the rejection by staff of the airline's pay deal.

Janaillac's exit has raised questions over Air France's ability to cut costs to compete with Gulf carriers and low-cost airlines.

"We are very concerned about the situation at Air France, which should be resolved as soon as possible," director Michiel Wallaard of labor union CNV told Reuters.

Air France-KLM last week said it expected profits to fall this year due to the effect of strikes at its French business.

Profits at Dutch sister company KLM, which has succeeded in cutting costs, rose in the first quarter, in contrast with losses at Air France.

"KLM is basically doing better than ever, as we have struck two very sober labor agreements in recent years. We now expect the other part of the company to follow," Wallaard said.

Air France took over KLM in 2003 when the Dutch airline was struggling, but the two have continued to operate independently.

Since then, KLM managed to agree several cost cutting deals with its staff, which has substantially improved its profitability and put it in a stronger position to compete with Gulf carriers and budget airlines.

Air France's problems have prompted calls in the Netherlands for KLM to free itself from its ailing partner, but the unions say the Dutch airline is too small to make it on its own.

"To disentangle the companies would be stupid," director Leen van der List of union FNV said. "This is a global business in which you need strong partnerships. Both companies need to make the best of their relationship, to use its advantages and strengthen it."

Wallaard agreed that single life would not be happy for KLM, but did not rule out the prospect of other partners, who might prove more attractive.

"We want to continue with Air France and are not asking for a divorce," he said. "But without a rapid solution we have to think about Plan B. One of the scenarios that people think about is a takeover of KLM by another partner, such as Delta."

KLM and Delta Air Lines are both members of the SkyTeam Airline Alliance.

For now, though, the Dutch unions do not see another realistic option other than to wait for Air France to reach a compromise deal with staff.

"There is an answer to every conflict, and I'm sure an independent outsider will be able to bring the solution," Van der List said. "But it needs to be done quick, we can't afford to wait weeks."