French State’s Bluster Belies Alcatel’s Job-Cutting Reality

President Francois Hollande’s government drew from a well-worn French playbook this week when it threatened to block job cuts at Alcatel-Lucent SA. It’s a game plan that almost always ends with firings happening anyway.

Alcatel is unlikely to be any different.

The telecommunications-equipment maker said Oct. 8 that it will eliminate 10,000 jobs globally, including 900 in France. “What we want are serious negotiations to limit the job cuts,” Prime Minister Jean-Marc Ayrault said the next day. “If there is no accord, this restructuring plan won’t be approved.”

For all its tirades, the Socialist administration can do little to stop a private company that has lost money in six out of the past seven years from reducing headcount and closing operations. As with ArcelorMittal and PSA Peugeot Citroen SA, the corporate plans are likely to go ahead.

“This is purely crisis management,” said Antonio Barroso, a political analyst at Teneo Intelligence in London. “The government is trying to show it cares at a time when unemployment is above 10 percent. In the end they can apply pressure to limit the cuts but I don’t think they have a lot of leverage to stop them happening.”

Not Reliable

Ayrault’s remarks echo the government’s initial reactions to plant closures by carmaker Peugeot and steelmaker Arcelor that were announced in July and November 2012 respectively. In both cases, the plans eventually got under way in the face of the financial realities of the companies and the markets they address. Those drowned out the howls of protests from unions and lawmakers during weeks of front-page coverage in the media.

Alcatel shares fell 1.6 percent to 2.74 euros at 9:50 a.m. in Paris.

Unions aren’t holding out much hope in the Alcatel case either, saying the government’s threats don’t add up to much.

“If past experience is any guide, we can’t rely on the state to intervene directly to stop the job cuts,” CGT union representative Stephane Dubled said in an interview. “They’re not completely deaf to our situation. It’s a start, but we’d like something more concrete.”

Although the government took to the airwaves right after the Alcatel plan was announced, its remarks have been more measured than in previous cases, reflecting the recognition of the company’s dire state.

Alcatel-Lucent is speeding up a turnaround bid after thousands of earlier job cuts, restructuring and asset sales failed to stem losses. Pressure on equipment prices and slower investment from European carriers, along with competition from China’s Huawei Technologies Co., are forcing Alcatel-Lucent and rivals such as Nokia Oyj’s network-gear unit to reduce staff.

‘Realistic Expectations’

Unions, too, have sought to temper their members’ expectations, looking to the government to at best win some concessions rather than a wholesale abandoning of the plan.

“We’re keeping realistic expectations about what the state can do,” CFDT union representative Pascal Guiheneuf said. “With all the money going into research tax breaks, giving Alcatel access to qualified French engineers at a cheaper cost, the state does have some power to ask for concessions. It’s not just about immediate job cuts; it’s about the company’s future. The state definitely has some power over that.”

Ministerial reaction suggests a greater understanding of corporate reality -- a recognition that has evolved since Hollande came to power in May last year.

When Peugeot said it would close a car plant in France for the first time in 20 years and bring its total job cuts to 11,200, Hollande said the plan was “not acceptable.” With Peugeot executives making the case that the survival of France’s largest carmaker was at stake, the government revised its stance and called the actions “inevitable.” The plan has gone ahead.

Arcelor’s Plan

After months of talks and government assistance to the company, the last car from the Aulnay plant that’s being shut is slated to roll off the line this month.

The ArcelorMittal plan to shut down a section of its plant in Florange drew an even fiercer response, with Hollande telling Lakshmi Mittal, the chief executive and biggest shareholder of the world’s largest steelmaker, to find a way to keep the jobs, sell the operations or face its nationalization. Industry Minister Arnaud Montebourg, who had suggested its nationalization, told Mittal he was no longer wanted in France.

In the end, Mittal went ahead and shut down the furnaces as he had planned while agreeing to use the facility for an alternative purpose in the future.

In contrast to the positions on Peugeot and ArcelorMittal, Montebourg’s stance on Alcatel’s plan was practically supportive.

‘Burning Cash’

Alcatel-Lucent is “burning through cash” and “the French government considers that its mere existence is in danger,” Montebourg said during a parliamentary debate on Oct. 8. The government has asked the company to lead “exemplary social dialog” and told phone companies they should favor Alcatel when purchasing equipment.

“There’s definitely been a learning curve,” Barroso said. “The government knows it is going to face a number of episodes like this and that in the long term its goal has to be to regain competitiveness.”

Yet with unemployment at a 14-year high of almost 11 percent, the political noise is unlikely to fade. Lawmakers from Hollande’s own party expressed dismay at the inability of the government to do much in the Alcatel-Lucent case.

“It’s a Franco-American crown jewel that has made technological marvels and is having a very rough time,” said Francois Brottes, a Socialist lawmaker who heads the economic affairs committee at the National Assembly, which will question Alcatel-Lucent CEO Michel Combes next week. “Alcatel has to understand that France gave birth to this company and shouldn’t have to pay the high social price that’s being announced.”

Can the government do anything to stem Alcatel’s plans for job cuts?

“If we don’t try we won’t get anywhere so we have to try,” he said.

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