The wingtip and tail of an Air France Airbus 380 are shown after its maiden arrival at Dulles International Airport in Virginia June 6, 2011.GARY CAMERON/Reuters
Air France-KLM has ousted its chief executive officer, Pierre-Henri Gourgeon, as Europe's second biggest carrier by revenue seeks to "improve the group's operating and financial performance" amid a worsening economic outlook and as budget airlines seek to steal market share.
Shares in the group had risen by as much as 5 per cent on Monday, ahead of a meeting of directors. Mr. Gougeon will also step down as chief executive of Air France, and be replaced in this position by Alexandre de Juniac, who previously was chief of staff to Christine Lagarde, the former French finance minister. Jean-Cyril Spinetta, chairman of Air France-KLM and Air France, will become chief executive of Air France-KLM group.
But the company said it would delay by at least a year a corporate restructuring that would make Air France-KLM a holding company of its two carriers, similar to the arrangement at International Airlines Group, parent of British Airways and Spain's Iberia.
"In the current economic context, top priority must be given to the recovery and improvement of the performance of Air France and of KLM," the company said.
While all airlines are struggling with the impact of soaring fuel costs and concern about a decline in business and consumer confidence, Air France-KLM has lagged behind its peers.
In July, it issued second-quarter results that fell short of analysts' expectations, reporting a net loss of €197-million ($271-million U.S.), which it blamed on rising fuel costs and political unrest in north Africa and the Middle East.
News of the enhanced role of Mr. Spinetta, who was CEO of Air France between 1997 and 2008, was welcomed by analysts but they cautioned that restoring the group to profitability would be a challenge.
"We admire his strategic thinking. But clearly times are vastly tougher now than when he was previously in the hot seat," analysts at RBS wrote of Mr. Spinetta in a note, citing the then-buoyant market and advantageous oil hedging from which Air France benefited at the time.
Analysts said the first priority for the new management team would be the company's balance sheet. Adjusted net debt stands at more than four times earnings before interest, tax, depreciation and amortization, according to Deutsche Bank analysis, compared with closer to two times at IAG and Lufthansa.
While the group recently announced a fresh round of cost cuts, including a hiring freeze, the extent of the leverage has prompted analysts to brace for a possible rights issue. "There's a risk of one at any company that's heavily indebted," said one. Net debt stood at €6.04-billion at the end of June.
"They've got to focus on reducing capital expenditure and getting as much free cash flow as possible," said Deutsche Bank's Geoff van Klaveren, who downgraded the group to "sell" this summer, in part on concerns over debt.
Media reports had hinted that Mr. de Juniac would join Air France but suggested he would initially be a deputy to Mr. Gourgeon, who in the summer won approval for a four-year term as chief executive of the group and Air France.
Leo Van Wijk, the vice-chairman, will be deputy chief executive of the whole group.
The French government is the airline's biggest single shareholder with a stake of 15.7 per cent.