A block on state aid, job cuts and cash shortages. Just three big headaches that should ensure the managements of the struggling European majors endure a long, hot summer.
Olympic Airways has become the first carrier to suffer the ignominy of having a tranche of its state aid blocked by the European Commission. The decision in late April came six weeks after the Greek government sacked chairman and chief executive Rigas Doganis - a move that alarmed Commission officials.
The Commission stresses the decision to block the GDr23 billion (US$96 million) second tranche of state aid has nothing to do with the sacking of Doganis and instead highlights state interference in the operations of the airline and the extra GDr11 billion paid by the state to cover redundancy costs.
But one Brussels source accuses the Commission of 'picking on' the Greek carrier because it has less lobbying power than other airlines that have had similar social cost issues brushed under the carpet. The source claims the Air France, Aer Lingus and Sabena cases all featured 'questionable' payments which were not covered by the original state aid ruling, yet Brussels chose not to act.
Meanwhile, Sabena's new chief executive Paul Reutlinger is attempting to prepare the employees for the inevitable. He is looking for annual cost savings of BFr4.7 billion (US$154 million) by 1998 and expects management and unions to share the pain. He has put a number of options on the table: the unions' share could come from cutting 1,700 jobs, taking a 15 per cent wage cut or raising productivity. 'There could also be a mix of the alternatives and it is up to the unions to decide what their priorities are,' says an airline source. 'Reutlinger does not want to impose a deal, he wants a dialogue.'
Reutlinger aims to combine the savings with an increase in load factor to meet the demands of shareholder Swissair for a 4 per cent return on investment by 1998, but Sabena's continuing high yields will undoubtedly come under pressure from the expansionist plans of Virgin Express (see page 8).
Meanwhile, an offer of equity for labour concessions may help to defuse the crisis at Air France Europe, where unions have been resisting demands for cuts. Group chairman Christian Blanc has warned the subsidiary could 'disappear' if action is not taken to stem losses caused by domestic competition. Air France Europe faces a potential FFr1.3 billion (US$260 million) loss this year and Blanc is looking for 'significant' labour cost savings as part of his plan to turn the carrier round, which includes introducing ticketless travel on key trunk routes.
However, winning the unions over with a US-style concessions for equity swap will not be simple, says Bertrand d'Yvoire of Consultair. He adds that changes in French fiscal law may be needed and that the culture of share ownership is not as widespread in France as in the US: 'I think the problem is more psychological, there is less of a gambling attitude here.'
Alitalia's restructuring plan was not due to be released until late May, as the management was awaiting the make-up of the new coalition government. But there is speculation in Rome that up to 2,000 jobs could be cut on the ground with productivity increases demanded from flying crew. TAP Air Portugal is reportedly shedding over 1,000 jobs.
M Blacklock/M Odell
Source: Airline Business
