KLM chiefs abandon criticised bonus plan

19 April 2004

AMSTERDAM — Faced with threats of lightning strikes, KLM directors have abandoned lucrative bonuses promised to them after the takeover by Air France.

The KLM board of directors met with unions and the company’s employee Works Council at its Amstelveen headquarters on Sunday night. Its decision to reject the bonuses was backed by the supervisory board of commissioners.

Both unions and the employees council had been enraged by the bonuses that KLM chiefs would be paid if planned cost cutting targets were met after the Air France takeover, news agency ANP reported.

In the first year after the deal, KLM chiefs were set to gain a 20 percent bonus on top of their full-year salary, 30 percent in the second year and 50 percent in the third year.

But faced with a massive restructuring and 4,500 job cuts aimed to reduce costs, the planned bonuses did not go down well with unions and workers who feared the KLM board would be tempted to cut more jobs.

Unions threatened to stop wage talks and even to consider lightning strikes if the bonuses went ahead.

Finance Minister Gerrit Zalm also said the bonuses were “very generous” and warned that a government representative would attend the Monday meeting to demand lower rewards. The Dutch State has a say in KLM affairs because it maintains 14 percent priority shares in the airline.

Faced with a confrontation with the government, KLM chiefs resolved on Sunday night to abandon the planned bonuses. A company spokesman refused to confirm whether Zalm’s criticism played a role in the board’s decision.

Christian trade union federation CNV and union CNV Bedrijvenbond had urged the minister on Friday to issue a statement about the planned bonuses, public news service NOS reported.

The KLM board’s climb down came ahead of a meeting on Monday at which the transaction terms will be presented to KLM shareholders, who must vote for or against changing the articles of association — necessary for the planned takeover to proceed.

The Dutch stockholders association VEB is expected to strongly criticise the Air France takeover on Monday, claiming that the agreed price is too low.

VEB claims that Air France is obtaining just over 50 percent of KLM for nothing. It said the deal values KLM at EUR 17.80 per share, but KLM is worth EUR 34.14 per share.

VEB based its estimates on the value of the KLM name and its landing rights and said Air France should thus pay EUR 1.5 billion for KLM, but has instead offered about EUR 785 million for the Dutch airline.

KLM and Air France announced in September 2003 a share swap deal that effectively meant Air France would take over its Dutch rival. Air France bid 11 shares and 10 warrants (options of shares in the new company) in exchange for 10 KLM shares.

The new company will be called Air France-KLM Holding and the Dutch flag carrier will hold a 19 percent stake. Air France will hold 37 percent and the French government will maintain 44 percent. The deal is scheduled to be completed in May.

Subject: Dutch news