Swissair Group's French subsidiaries face restructuring and redundancies

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Despite improved economic conditions in the airline industry and a significant increase in passenger traffic, it became clear in April 2001 that the French subsidiaries of the Swissair group (AOM, Air Liberté and Air Littoral) are facing difficulties which could potentially lead to their demise, with the loss of many jobs. An injection of FRF 500 million should give the companies until the end of June 2001 to consider the various proposals for takeover or continued operation, as well as potential redeployment of employees.

The 1980s saw the gradual opening up of the French civil aviation industry to competition. The first routes opened to competition were those serving the overseas départements and territories (départements et territoires d'outre-mer, DOM-TOM), which were very profitable due to major tourist traffic. Later, scheduled domestic routes were also gradually opened to competition. A number of new airlines were launched in order to enter the newly emerging competitive market, notably UTA, Air Outre-Mer, Corse Air, Minerve and Air Liberté.

The development of tourist-driven air traffic to the DOM-TOM, combined with little competition from the state-owned companies which had previously had a monopoly - mainly Air France on routes to the DOM-TOM and Air Inter on routes in mainland France - meant that these new companies were initially a commercial success story, even if their overall profitability remained relatively low.

However, the development of the high-speed train (Train à grande vitesse, TGV) rail network serving major French cities in the west (Bordeaux, Nantes and Rennes) and the south (Lyons, Marseilles, Montpellier), and the phased restructuring of Air France, bolstered competition on the domestic and DOM-TOM routes. This led, during the 1990s, to a wave of concentration and restructuring in the airline industry. With financial backing from the Crédit Lyonnais bank, Air Outre-Mer merged with Minerve to create AOM, while Corse Air was renamed Corsair when it became a subsidiary of Nouvelles Frontières. UTA and Air Inter were taken over and merged into Air France.

This wave of mergers and restructuring gave rise to major industrial unrest (FR9704138F).

SAirGroup enters market

Some major airlines wishing to grab a share of the French market used this initial restructuring in the 1990s to gain a foothold in France. A case in point was British Airways, which acquired TAT, a regional carrier and Air Liberté, a charter airline, and made them the spearhead of its push into France. British Airways invested EUR 760 million in these two companies only eventually to abandon its strategy and to sell them both off to the Swiss-owned SAirGroup (the parent holding company of Swissair) and the Dutch-based holding company Taitbout Antibes BV- the parent company of which is the Marine-Wendel investment company, headed by Ernest-Antoine Seillière, who is also president of the Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) employers' confederation – for an estimated EUR 91.5 million-EUR 106.7 million.

In the late 1990s, SAirGroup sought to become a major international airline through a strategy of acquiring or taking control of other airlines. SAirGroup is currently the dominant partner in SABENA (Belgium), LTU (Germany), LOT (Poland), Austrian Airlines (Austria) and three French carriers: Air Littoral, Air Liberté and AOM. This external growth strategy has proved to be a risky business for the entire SAirGroup, and has ushered in "unprecedented losses" (EUR 1.89 billion for the 2000 fiscal year). This very lacklustre performance led the company's chair, Philippe Bruggisser to step down at the beginning of 2001 (BE0102340F).

What type of restructuring?

At its general meeting of shareholders on 25 April 2001, SAirGroup, which has been renamed the Swissair Group, set out its blueprint for pulling out of Air Littoral, Air Liberté and AOM. Together these three airlines have around 7,400 employees.

The Swissair Group decided to stop (as from 2 April 2001) financial support for Air Littoral. Air Littoral is now attempting to cut loss-making routes, and hopes that by adopting an aggressive marketing policy, it will be able to reshuffle its equity holdings in September 2001, once it has shown itself to be a going concern.

Swissair and the holding company, Taitbout Antibes BV, have agreed to invest FRF 500 million (over EUR 76 million) to prop up AOM/Air Liberté until 30 June 2001. The AOM/Air Liberté chief executive, Marc Rochet, has announced the main lines of a "rescue plan", which will reduce the aircraft fleet by almost 50%, from 50 to 27, cut some routes, reduce staffing levels and cancel collective agreements in the companies operated by the group (TAT, AOM, Minerve and Air Liberté).

The trade unions at Air Littoral and AOM/Air Liberté, which have formed a united front, have already come out against the Swissair Group plan. They are calling for the 7,400 employees at AOM/Air Liberté and Air Littoral to be kept on, possibly by redeploying them to Air France. The trade unions consider that any potential buyers should be required to submit their business and redundancy plans to the companies' works councils. They are also asking the current shareholders to put the various companies "back on a sound business footing to ensure their survival" before pulling out.

It does not appear that there are many potential buyers. Some tourism companies have expressed interest in acquiring specific divisions of AOM/Air Liberté. The Nouvelles Frontières group is interested in taking on specific flight slots and potentially some aircraft and staff. Club Méditerranée, which was a former shareholder in AOM, has expressed interest, but remained very non-committal.

However, local and regional councils in the French Antilles (Caribbean overseas territories), which over the past few years have had to administer problematic restructuring of their own local carriers, are concerned by the fact that there will be fewer flights to continental France. They are considering ways of helping to support the airline industry serving the French Antilles. Similarly, the Nice-Côte d'Azur Chamber of Commerce and Industry, which manages Nice airport (France's second largest), is concerned by the situation and is also giving thought to possible financial measures to help bail out those airlines serving it.

Air France, which hired 4,500 new employees in 2000, has remained very non-committal on any potential partial or total takeover of the operations of the companies in question, despite renewed calls from trade unions.

Lastly, some members of the National Airline Pilots' Union (Syndicat national des pilotes de ligne, SNPL) are considering an employee buy-out of Air Littoral and AOM/Air Liberté.

Position of Ernest Antoine Seillière

The fact that Taitbout Antibes BV is a shareholder in AOM/Air Liberté, along with the Swissair Group, has provoked the curiosity of the media and has given rise to some controversy, especially between the Minister of Transport, Jean-Claude Gayssot and Ernest Antoine Seillère, the head of both Taitbout Antibes' parent company and the MEDEF employers' confederation. The latter claims that his company is functioning merely as a shareholder without a management role. His critics suggest that the companies he controls are allegedly guilty of having been silent partners holding shares on behalf of Swissair. Some trade unions and political organisations have picked up on this argument.

Over and above rumour, analysts have pointed out that, for some time now, there has been increasing criticism from various employers' quarters over Mr Seillière's strategy as president of MEDEF. Having announced that he will not seek re-election when his term of office ends in December 2002, his recent run of bad luck in terms of the investments in the airline industry of the family company he heads has weakened his position among employers in general and within MEDEF in particular.

Commentary

Within 20 years, the French airline industry has been significantly shaken up by the advent of competition on air routes and the privatisation of Air France. Past management errors aside, creating a second viable French air carrier from a hastily cobbled-together coalition of very diverse companies remains problematic, no matter whether it is or is not backed by a major airline (British Airways in the recent past, SwissAir today). As for the Air France group, which is still recovering, it is hardly rushing suddenly to take on the whole workforce of all the other ailing air carriers.

Nevertheless, there has been a very significant increase in air traffic and whole sections of AOM/Air Liberté and Air Littoral operations remain viable. Consequently, they will doubtless end up being taken over, but the consequences for the workforce are unknown. (Maurice Braud, IRES)

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