Kevin O'Toole/AMSTERDAM
KLM HAS PUT further development of its alliance with Northwest Airlines on hold until the bitter disagreement over shareholder rights is settled in the US courts.
While stressing that the alliance, once "the envy of the airline industry", continues to operate well, KLM president Pieter Bouw is adamant that the shareholder-rights issue must be resolved before any further progress can be made.
"Before we enhance the relationship, we have to be certain about its continuation," he says, admitting that the proposed linking of cargo operations is already one casualty.
The appointment of new KLM representatives to Northwest's board is also on hold, pending the outcome of the court case, which is due to be heard "within the next two months, or possibly longer".
Bouw bluntly refuses to reveal whether talks are taking place with alternative US partners, such as American Airlines, but does not rule out anything, if the share issue remains unresolved.
"We are hopeful that the court cases will go in our favour, but, if it doesn't work out, we will have to look again at our options," he says.
The dispute centres on the "poison pill" put in place by Northwest towards the end of 1995, largely to prevent what the US carrier saw as KLM's ownership ambitions.
The move prevents KLM from exercising rights to increase its voting shares to the maximum 25%. The Dutch carrier now holds a chunk of its stake in non-voting preference shares.
In its court filings, KLM alleges that the poison pill was pushed through without the necessary level of boardroom or shareholder support. Following Northwest's dramatic turnaround in performance, the commercial value of KLM's cancelled share rights is being put at around $150 million. Ironically, it was Northwest's success which was largely responsible for buoying KLM's annual results for the year to the end of March.
A revaluation of the Northwest preference shares, which had been written down after the US group's near-collapse, added DFl258 million ($100 million) to the bottom line. That left KLM showing the highest net profit in its history, at DFl547 million. Further revaluations will feed through over the next couple of years, says KLM.
Underlying operating profits were down by more than DFl300 million, at DFl453 million. The KLM president says that the resumption of payments of employee-pension premiums added DFl218 million to salary costs, while the strength of the Dutch guilder wiped out DFl150 million. Without these effects, operating profits would have edged up by DFl50 million.
KLM was also hit badly by the recent slump in the cargo market, having added an extra 18% capacity in anticipation that growth would stay strong. Cargo load factors dived as traffic growth trailed at 11%, while world overcapacity pushed yields down by 5%.
Passenger services fared better, with load factors climbing above 74% on the back of healthy 9% traffic growth, although yields again fell by 3%.
Source: Flight International
