Dutch reject KLM cost-cutting plan linked to government bailout

The Netherlands has rejected a cost-cutting plan put forth by Air France-KLM’s Dutch arm and withheld a portion of a 3.4 billion-euro ($4 billion) government bailout until it approves the restructuring plan.

The Dutch government won’t grant a second tranche of state aid because pilot union VNV rejected a pay cut, Finance Minister Wopke Hoekstra and Infrastructure and Water Management Minister Cora van Nieuwenhuizen wrote in a letter to parliament on Saturday.

“It’s up to KLM and the unions to ensure that the required conditions will be met,” they said.

The Dutch government had linked the funds to KLM taking steps to improve profitability and competitiveness, including through wage cuts. All unions accepted a pay cut except for the pilot union, KLM stated earlier on Saturday.

The decision sends KLM back to the drawing board if it wants to receive more cash from the package of loans and guarantees. It also comes at a sensitive time for Air France-KLM as a whole, whose two biggest shareholders, France and the Netherlands, are preparing for critical talks on further bolstering the airline’s weakened finances.

The Dutch finance minister has pushed for cuts in KLM’s structural costs, which he deemed too high even before the health crisis erupted. Management had reached a deal with the Dutch pilots’ union VNV to cut an annual bonus and future pay increases through March 2022, but that accord angered cabin-crew unions because pilots also asked for more flight perks on business class.

KLM has drawn down 942 million euros total from the direct government loan and credit facility, and Hoekstra told parliament last month the government wouldn’t make a second tranche available until it’s satisfied with the cost-cutting plan.

The French have been faster in getting Air France a 7 billion-euro rescue package that also came with some strings. French Transport Minister Jean-Baptiste Djebbari said in an interview that Air France-KLM’s future as a combined company will be put to the test during the talks with the Dutch on a possible further recapitalization.

European airlines including rival Deutsche Lufthansa AG have turned to government aid in a bid to survive the travel slump caused by border restrictions and consumer reluctance to fly.

Air France-KLM Chief Executive Ben Smith has said talks are ongoing with shareholders for a recapitalization because the state rescue is only enough for less than a year.

While French Finance Minister Bruno Le Maire has said he would guarantee the survival of Air France, his Dutch counterpart Wopke Hoekstra has been more circumspect, saying “this is about tax money, so it is not a foregone conclusion.”