To Survive in Global Aviation Recession Air France-KLM on massive Job Cuts

Air France Cuts Spending by $ Million to Reduce Debt


Air France-KLM Group (AF) plans to cut capital spending by a further  million euros ($ million) over the next two years as Europe’s biggest airline trims investments in a push to pare debt and lift profit margins.

The outlay will be reduced by  million euros next year and  million euros in , the Paris-based company said today in a statement, adding that operating profit should reach a level equivalent to  to  percent of sales in .

Enlarge image

Air France aircraft, part of the Air France-KLM Group, are seen on the tarmac at Roissy Charles de Gaulle airport in Paris. Photographer:


Air France-KLM’s Transform  plan is seeking to shave  percent from non-fuel costs and cut net debt by  billion euros. The capital-spending curbs, which may crimp jet purchases, will pare investment next year to . billion euros, including a - million euro reduction to the initial target announced in July.

“This is a necessary reduction, but given the group’s younger fleet age versus competitors they have the flexibility to do it,” said analyst Donal O’Neill at Goodbody Stockbrokers in Dublin, who has a “buy” rating on the stock. “The Transform plan is gathering pace and should be well on track to deliver.”

Employee Exits

Employee expenses will be reduced by  million euros by , aided by  departures already secured, and the medium- haul business should break even that year as the fleet is reduced by  aircraft, Air France-KLM said prior to an investor briefing at Paris’s Charles de Gaulle airport today.
Chief Executive Officer Jean-Cyril Spinetta said in June he would eliminate more than , jobs at the main French unit to deliver savings he reckons are needed to guarantee survival.

The cut in capital spending is being driven by a “headwind” of high fuel costs, “but does show the group’s determination to deliver on targets,” said Stephen Furlong, an analyst at Davy Holdings in Dublin who rates the stock “underperform.”

Air France-KLM expects a  million-euro annual operating loss from French medium-haul flights alone, spokeswoman Brigitte Barrand said, reiterating comments at the investor event, which was closed to reporters. That’s unchanged from a year earlier.

Shares of Air France-KLM, which is folding the Brit Air, Regional and Airlinair units that connect smaller cities into a single business, traded .9 percent lower at . euros as of : p.m. in the French capital. They’ve gained  percent so far this year, valuing the company at . billion euros.
Lufthansa, IAG

Rival carriers are also seeking to slash costs. Deutsche Lufthansa AG (LHA), Europe’s second-biggest, plans to save . billion euros by  through its Score plan, which in addition to , job cuts includes the folding of short-haul operations outside Frankfurt and Munich into the Germanwings low-cost unit.

The Cologne-based company has also scrapped routes, frozen capacity and delayed an upgrade of the inter-continental fleet.
At European No.  International Consolidated Airlines Group SA (IAG), the British Airways unit is seeking voluntary departures among , senior cabin crew at London’s Heathrow airport and Spanish division Iberia plans , job cuts, prompting unions to call a six-day strike in the run up to Christmas.
Air France-KLM’s capital-spending cuts will see investment in  fall to . billion euros, reversing an increase for that year announced on July , when the carrier had said it was reining in the outlay for this year and . Expenditure totaled . billion euros in .

Adopting new accounting standards for pensions will have a . billion-euro negative impact on opening equity next year, though there’ll be no cash impact, the carrier said today.

Air France-KLM had an 9 million-euro loss in the second- quarter, versus 9 million euros a year earlier, as it posted charges of  million euros for payments linked to job cuts.

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