A further reduction in costs is the key to Air France's partial privatisation later this year, but pilots are strongly resisting cuts in their salary.

A strike over a 15per cent cut in pilots' pay started 1 June and is costing the carrier FFr100 million (US$16.7 million) a day, meaning that if the strike continues for two and half weeks, the carrier's 1997 net profits will be wiped out. At presstime 83 per cent of the carrier's long haul and 60-70 per cent of total flights are being cancelled daily.

More than 80 per cent of Air France's pilots are striking in protest to the management's attempt to push through a FFr500 million pay cut in return for a 10-12 per cent stake in Air France, worth some FFr450,000 to each pilot. The cuts are part of a FFr3 billion three-year cost cutting programme.

A spokesman for the French flag carrier says Air France pilots earn 40 per cent more than pilots at British Airways pilots and 20 per cent more than those at Lufthansa.

If the pilots don't back down, the rest of the airline's business may suffer. 'If pilots don't accept the cuts we might be forced to close some other divisions such as cargo and parts of the short-haul side of the business,' he says.

Air France's labour costs, which are currently 34 per cent of total costs, must become more competitive, especially on Air France's short to medium haul routes, he states.

Resistance from pilots, who with the rest of the workforce have raised productivity by 30 per cent in the 1994-1996 period, has forced management to soften its original proposals. It has offered to abandon a two-tier grading system introduced last year - junior pilots at Air France start on FFr240,000 a year instead of FFr350,000. In addition, the FFr500 million cut to the wage bill may be spread over a longer time period, and, according to the SNPL main pilots union, its demands that the wage cut could be clawed back at a later date may also be agreed by management.

According to one Paris-based consultant 'the key aim of the French government is to stop the strike', which was threatening to spill over into the World Cup Season. But a temporary reduction in wages will just be a 'short-term solution', he says. If this happens, Air France's competitiveness will be 'in danger' and private investors will be saddled with Air France's high cost structure, he adds.

Another Paris-based consultant, Loic Tribot la Spiere, managing director of Centre d'Etudes et Prospectives Stratégiques, says 'Spinetta cannot give in' to the pilots. Air France's fixed costs are 'too high' and private investors looking to buy shares in the airline later this year will 'lose confidence' if the pilots get their way, he says.

Source: Airline Business