French Marriage of Convenience

Pfäffikon SZ, Switzerland – On the 23rd of September 2003 Jan Poot Sr. of Chipshol wrote a letter to prime minister Balkenende on why he thought a merger of Air-France and KLM would be unwise. Now, ten years later, Poot seems to have been right. The business history between the Netherlands and France contains more painful and unfortunate incidents that have a hard time surviving when exposed to the light of day. I point the reader to the construction of the European parliament in Strasbourg. Personally I also find it to be a disgrace that the oldest stock exchange in the world, located in Amsterdam, has fallen prey to a collection of indifferent French individuals. There are more than enough real-life examples that can be pointed to whereby market parties in Amsterdam have been disparaged and wrung. And now it’s KLM’s turn – the oldest airline in the world.

Oldest airline
On Tuesday the 7th of October 1919 the “Koninklijke Luchtvaart Maatschappij voor Nederland en Koloniën” (The Royal Dutch Airline Company for the Netherlands and Colonies) was founded. 1.2 million guilders in seed capital was raised by, among others, the exceedingly wealthy Dutch entrepreneur Frits Fentener of Vlissingen. Lieutenant-aviator Albert Plesman was appointed accountant and was later installed as director. With this, the KLM is the oldest airline company operating under its original name and has a rich history.

Alliances
It all sounded too good to be true in 2003. “Alliances” was the magic word. Air France and KLM would, together, be able to compete with the mighty American partnerships. The future of Schiphol would thereby be guaranteed and the Netherlands would continue to play a pivotal role in international flight traffic. The reality is that Air France is moments away from plundering the accounts at KLM. I can only hope that KLM is not that naive. The merger was – as many mergers are – a gigantic failure. Air France-KLM is a marriage of convenience that was put together with a French twist.

Paying extra
The shareholder must sit on the sidelines while in a little over ten years the price of Air France-KLM has collapsed from around 12 euros to the questionable level of 7 euros. With that it is one of the worst performing stocks of the Euronext. It is a noble idea that the KLM pilots would want to be co-shareholders, but as commander in chief I would sleep on that idea first. When you travel together with KLM you are required to pay extra in order to sit next to each other. KLM takes care. Who has grown wiser after the merger? The French, who – on the back of KLM – have tried for over a decade to keep an unwieldy and inefficient airline company afloat.

Banana republic
The Netherlands would do well to better take care of its heritage, which is also a point of attention during the IPO of ABN AMRO. Schiphol has in some cases positioned itself in an unnecessarily arrogant fashion. Schiphol would do well to serve the interest of the Netherlands as an important employer. France, for years has sidestepped all EU budgetary rules with great ease, which is food for thought. I have argued before that France is a danger to the EU as a whole. A well-known Dutch entrepreneur remarked “the Netherlands is a banana republic replete with indecisive nodding dogs”. It sure is starting to seem that way.

It remains for me to wish you a good weekend.


Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.