France warns of Air France-KLM 'instability' as Dutch up stake

France on Thursday urged Dutch officials to guard against management "instability" at Air France-KLM after the Netherlands upped its stake in the binational holding, putting it on equal footing with Paris in a bid to gain more oversight over the company.

French Finance Minister Bruno Le Maire accused the Dutch government of "destroying value and creating instability" after lifting its stake to 14 percent, just shy of the 14.3 percent held by France.

France was caught off guard by the stealth purchases unveiled this week, and Le Maire said he would demand explanations from his Dutch counterpart Wopke Hoekstra in Paris on Friday.

"Between two states, which are friendly and close founding members of the European Union, such behaviour is unacceptable," Le Maire told Public Senat television.

"It's not reasonable to remain in this situation, which benefits nobody," he added.

The stake purchase comes just weeks after tensions flared over the renewal of Pieter Elbers as head of the KLM unit, and reports of Dutch fears that flights would be shifted from Amsterdam-Schiphol to the Paris's Charles de Gaulle hub.

Le Maire denied that Air France-KLM was at risk of a divorce, but said he expected Dutch proposals on how to ease the crisis as CEO Ben Smith tries to improve profitability in Europe's cutthroat aviation market.

"It's not the French or Dutch governments that will best manage Air France-KLM, it's Ben Smith, Mr Elbers and the Air France-KLM board," he said.

"The company will do better if we work together," he said.

- Dutch resentment -

Dutch newspaper AD reported Thursday that Prime Minister Mark Rutte began discussing the Air France-KLM stock buy as early as 2017 in top-secret meetings with just Hoekstra and two other ministers.

Alarm bells started ringing after Delta and China Eastern Airlines each bought stakes of 8.8 percent in the airline, AD said, prompting fears of a threat to the status of Amsterdam's Schiphol airport as a major European hub.

A series of costly strikes last year by pilots and other staff at Air France added to concerns that KLM's profits were being used to spare the French airline from making painful cost-cutting steps.

They ended only after Smith agreed to multi-year pay increases that analysts said were barely justified by Air France's finances.

KLM's operating profit of 1.1 billion euros ($1.25 billion) last year far outsripped the 266 million reported by Air France -- even though Air France has a fleet of more than 300 planes, compared with around 170 for KLM.

"In an ever more competitive aviation industry, KLM has watched, flabbergasted, as the French side does everything it can to avoid change, especially its pilots," French daily Le Figaro said in a front-page editorial Thursday.

"At a time of rising nationalism, this two-speed progress renders things impossible in the alliance," it said.

- Board seats? -

Air France-KLM shares fell a further 2.6 percent on Thursday to 10.94 euros, after sinking 11.7 percent on Wednesday on news of the Dutch stake purchase.

The Air France-KLM board, after a hastily convened meeting Wednesday, said it would "closely monitor the consequences" of the Dutch move.

But it remains unclear if it will give additional seats to Dutch government representatives.

The Dutch have five board seats, compared to 11 for France.

The conflict poses a tricky challenge for Ben Smith, a Canadian who became the first non-French leader of the holding in September following the strikes that cost the previous CEO his job.

Concerns have been growing in the Netherlands that Smith is looking to shift more KLM flights to Paris from Amsterdam in a bid to better compete against Lufthansa, and British Airways and Iberia owner IAG.

"KLM's position has been constantly eroded over the past few months," Hoekstra said on Tuesday. "We now have a seat at the table."

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