Air France Turns to Old Hand Spinetta as CEO Gourgeon Ousted
Stock Chart for Air France-KLM (AF)
Air France-KLM (AF) Group recalled Jean- Cyril Spinetta, 68, as chief executive officer and ousted Pierre-Henri Gourgeon amid slumping earnings and questions regarding the role of pilots in a fatal crash.
CEO since January 2009, 65-year-old Gourgeon had been slated to stay until 2013. Instead he quit after a board meeting late yesterday, with Chairman Spinetta taking charge until Air France-KLM adopts a single corporate structure that year.
Gourgeon’s position was undermined by a 60 percent drop in Air France-KLM’s share price this year, the worst performance in the region, and after safety experts said pilot training was a factor in a 2009 crash that killed 228 people. Government official Alexandre de Juniac, 48, will serve as CEO of the Air France unit, a post Gourgeon occupied, the Paris-based company said yesterday in a statement.
“Spinetta represents a safe pair of hands in a difficult period,” said Andrew Lobbenberg, a London-based Royal Bank of Scotland analyst with a “sell” rating on the stock. “They’re in a challenging position because if we head into a deteriorating macroeconomic environment they’re starting from a much weaker position than their peers.”
Air France-KLM shares fell as much as 40 cents, or 7.1 percent, to 5.21 euros and were down 3.4 percent as of 10:01 a.m. in Paris trading. The company has a market value of 1.62 billion euros ($2.22 billion), down about 60 percent since it first listed in 1999.
The Bloomberg EMEA Airlines Index has fallen 35 percent in 2011. Deutsche Lufthansa AG (LHA), ranked second in Europe by traffic, is down 41 percent and worth 4.44 billion euros. International Consolidated Airlines Group SA, the No. 3, has slid 42 percent since its January formation via a merger of British Airways and Spain’s Iberia, valuing it at 3 billion pounds ($4.7 billion).
“In the current economic context, top priority must be given to the recovery and improvement of the performance of Air France and of KLM,” yesterday’s statement said. “Consequently, the setting-up of a full-dedicated Air France-KLM holding, which was to be implemented at the beginning of 2012, has been put off. In these circumstances, Pierre-Henri Gourgeon has resigned from his duties as CEO of Air France and Air France-KLM.”
Air France-KLM suffered operating losses in two of the past three fiscal years following 11 years of profitability on that basis under Spinetta, who ran Air France and later the enlarged company formed via the purchase of KLM Royal Dutch Airlines NV from 1998 through the end of 2008, with Gourgeon as his deputy.
De Juniac will take charge of turning round the Air France unit, the company said, subject to the appointment being approved by a state ethics committee, given his government role.
The official served as chief of staff to French Finance Minister Christine Lagarde and more recently as an adviser to Francois Baroin, Lagarde’s successor after she stepped down in June to head the International Monetary Fund. The state still owns about 15 percent of Air France-KLM.
KLM’s Leo Van Wijk is to assist Spinetta as deputy CEO at the parent group, yesterday’s release said.
“Gourgeon wasn’t particularly appreciated by investors and having new leadership could help build confidence and provide an electro-shock for the company,” said Yan Derocles, an Oddo Securities analyst in Paris who recommends buying the stock.
De Juniac had been identified as a future Air France-KLM CEO in French media reports since June, with the plan originally for him to become deputy chief and head of the Air France division while Gourgeon continued in the group role. Yesterday’s statement didn’t say who will eventually replace Spinetta.
Himself a one-time government official, Spinetta took over as CEO the first time round with the company in recovery mode after a state bailout rescued it from a brush with bankruptcy in 1994. He is credited with developing a hub at Paris’s Charles de Gaulle airport and building the SkyTeam alliance with Delta Air Lines Inc. (DAL), as well as engineering the KLM deal that boosted the carrier to European No. 1 from third spot previously.
Air France-KLM has lately come under pressure to deepen cost cuts to achieve a level footing with Lufthansa and BA, and Gourgeon himself said at a Sept. 9 briefing that the airline was at a competitive disadvantage to rivals. The carrier’s full-year earnings target is simply to avoid a loss.
The global airline industry is likely to sustain a 30 percent drop in net income to $4.9 billion in 2012, and even that may prove too optimistic should the global economy slow further, International Air Transport Association CEO Tony Tyler said this month in an interview.
France’s BEA crash investigator has meanwhile published two reports showing that the crew of Air France flight 447 pulled the jet into a steep climb until it slowed to an aerodynamic stall before slumping into the sea while en route from Rio de Janeiro to Paris in June 2009, killing everyone aboard.
A book published last week with the title “Piloting Error, Volume 5” disclosed what it said were further recordings from the doomed Airbus SAS plane’s cockpit, revealing a scene dominated by confusion, a lack of coordination and denial among the flight crew as the jet plunged toward the ocean.
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