Employees back AOM-Air Liberté takeover

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In July 2001, the French courts approved a takeover bid for the AOM-Air Liberté airline group, previously controlled by Swissair. The successful 'Holco' bid, which was supported by employee representatives, provides for the loss of some 1,900 jobs out of 4,600. However, the long-term viability of this economically and commercially ambitious takeover remains very uncertain.

In spring 2001, the Swiss-based airline company, Swissair, announced that it would be pulling out of its loss-making French subsidiaries - Air Littoral, Air Liberté and AOM (FR0105158F). Subsequently, Air Littoral and its subsidiaries were taken over by its former chief executive, Marc Dufour, in early July. On 27 July 2001, the Créteil business court reviewed the various takeover bids which had been made for the remaining Swissair holdings in the bankrupt AOM and Air Liberté. In the absence of a satisfactory plan, the court could have ordered the companies into liquidation.

Positive outcome sought

Overall, 15 takeover bids were presented, of which only four sought to avoid the immediate liquidation of AOM-Air Liberté. Indeed, some of the bids concerned only specific routes and services and presupposed the prior liquidation of the company. The four comprehensive bids were all initially considered weak financially. Consequently, the court extended the deadline to allow bidders to improve their proposals in this area.

At this point, two of the four offers stood out from the pack. The first of these was a bid tabled by Marc Rochet, the chief executive of AOM-Air Liberté, which - although it planned to slim down the company drastically - appeared the most financially sound. However, Mr Rochet wished to stick to his original 'rescue plan', which involved reducing the aircraft fleet, the number of routes and staffing levels (FR0105158F). He set the condition that trade union representatives should sign a framework agreement, which would replace the various collective agreements in force in the individual companies of the AOM-Air Liberté group.

The second bid, known as the 'Holco plan', was backed by the Canadian bank, CIBC, and led by Jean-Charles Corbet, an Air France pilot and former chair of the National Airline Pilots' Union (Syndicat national des pilotes de lignes, SNPL). This bid, which was initially envisaged as an employee buy-out, was later modified to a standard takeover, though with potential employee share-ownership of up to 34%.

Despite the fact that the Holco bid offered less secure financial safeguards, the business court ultimately opted for it, as employee representatives had voiced a clear preference for this proposal.

Positions of social partners and government

The Holco bid received the overall approval of the AOM-Air Liberté works council on 26 July 2001. Of the 20 employee representatives on the council, 17 voted in favour and three abstained. No representatives on the council supported Mr Rochet's plan, which garnered 10 votes against and 10 abstentions. However, CFTC, which is a minority trade union within the AOM-Air Liberté group, did offer some backing for Mr Rochet's bid, on the grounds that the finance behind the Holco offer was too weak. Although some had no illusions, the remaining trade unions came out in support of the Holco proposal, mainly to dislodge Mr Rochet from his position as chief executive of AOM-Air Liberté. Gilles Nicolli of CFDT stated that: 'if the court were to choose the Rochet plan, it would have totally failed to grasp the situation.' CGT threatened strike action if the Créteil business court opted for the Rochet bid.

The Minister of Transport, Jean-Claude Gayssot - who had been particularly active behind the scenes and had been particularly anxious over the past few months to avoid a sudden, violent liquidation and a drastic redundancy plan - applauded the winning takeover bid. Swissair and the other current AOM-Air Liberté shareholder, Taitbout Antibes BV - a company controlled by the Marine-Wendel investment firm, which in turn is headed by Ernest Antoine Seillière, the chair of the MEDEF employers' confederation - announced that they were 'satisfied' with the decision, especially since a prior threat of legal proceedings against their management had been dropped.

The takeover plan

Swissair has agreed to pay EUR 200 million between 2 August and 31 December 2001 as a final contribution to relaunching AOM-Air Liberté. However, it is now up to the new management team to find new investors prepared to contribute an estimated EUR 76 million to EUR 121 million.

The takeover plan contains a proposed redundancy plan, which provides for a reduction of 1,853 in the total workforce of 4,559, through voluntary or mandatory redundancy, or through redeployment. Mr Corbet has made a personal commitment to 'lead the effort to find new jobs for all staff'. He has also reached an agreement with almost all trade unions representing pilots to set up a share-distribution scheme in return for wage cuts and a salary-scale freeze, in an attempt to save EUR 23 million over five years. This deal follows on from two earlier agreements with ground staff and cabin crew (flight attendants).

AOM-Air Liberté, which was gradually built up as a consortium of companies, will be transformed into a single firm and the status of the various groups of staff will be harmonised.

The company's business strategy is to be completely revised, and the group will soon be given a new name. The company's fleet is to be significantly reduced (from 50 to 28 aircraft) and services are to be cut by between 30% and 40%, while the least profitable routes (those to and from Marseilles, Nîmes and Bordeaux) will be axed. Instead of direct competition with Air France, which was the hallmark of the previous business strategy, the new management wants to build a business partnership with it, including 'code sharing' for specific destinations (in particular France's overseas territories and départements). However, one new route to Algeria is to be started up in November 2001. AOM-Air Liberté is aiming for a 30% share of the French domestic market and intends to compete with Air France on quality and greater service individualisation, instead of conducting a ruinous price war. The new management team aims to balance the company's books by 2003.

Commentary

Swissair is currently pulling out of its most loss-making European subsidiaries in order to refocus its business activities elsewhere. Consequently, Swissair has gone back on a previous commitment to become majority shareholder of SABENA in Belgium (BE0108359F) and has pulled out of Air Littoral and AOM-Air Liberté in France, agreeing to participate in rescue and recapitalisation packages in exchange for no legal proceedings being brought against it.

Following many long months of uncertainty, the Holco takeover of AOM-Air Liberté - against a backdrop of industrial peace - has ushered in the prospect of a new start for the company, though at considerable human cost (1,853 job losses).

However, the financial fragility of the Holco bid and the willingness of staff to accept the conditions of the newly-emerging firm are real grounds of concern for its long-term viability. Attracting new public (especially regional and local authorities) and private partners, over the coming months will be a determining factor for the survival of France's 'second airline'. (Maurice Braud, IRES)