Blanc's successor as head of state-owned carrier Air France will face a rough rideChristian Blanc's resignation statement from Air France begins with a stark heading: 'I take note of the government's decision.'

France's change of government, and the decision of prime minister Lionel Jospin to appoint a Communist transport minister, meant that the departure of Blanc was inevitable. This is a great shame for Air France and good news for its competitors.

Every Air France chairman in recent memory has had a tough time, and Blanc was no exception. Balancing the need to modernise and face commercial reality against the demands of labour unions and government has been an extremely challenging task at most state-owned European carriers, and Air France has been the prime example.

The irony is that during Blanc's last weeks at Air France his famous skills as a negotiator were, at last, beginning to bear fruit.

First, and most important, Blanc appears to have found a way of improving relations with Air France's labour groups. No doubt there will be future conflicts, but Blanc made enough progress to permit the vital integration of Air France Europe, the former Air Inter, into Air France, which finally took place in September. Clearly, it will take some time before the new, integrated Air France group is fully effective, but it was absurd for the domestic/European carrier to be operating without regard for its international sister airline.

Blanc has also achieved a second major coup - turning Paris/Charles de Gaulle into a proper hub and spoke operation, which is already beginning to bring benefits as connecting traffic grows. At last, Paris can now be a truly European hub, competing on a stronger basis for connecting traffic against its major rivals, London, Frankfurt and Amsterdam.

Finally, Air France has turned the corner financially. Although Air France Europe continued to lose money in the year to 31 March, Air France itself made a $75 million net profit. Blanc says the group will make around FFr1 billion ($164 million) net this year, and more in 1998/9.

It seems absurd that Blanc should feel forced to depart at this point, but that's politics. Blanc firmly believed that Air France would have to be privatised if it was to complete the process of transforming itself into a market-led, efficient, financially strong airline. He had even promised employees shares in the company in return for concessions. No wonder he departed when the government said 'non, merci'.

We wish Blanc's successor well. Completing the revolution at Air France against a background of state control, political interference and a probable increase in the bargaining power of the unions will be tough, to say the least. Meanwhile, Air France's competitors are well placed to take advantage of the situation.

When Air France was close to bankruptcy in the early 1990s, it was perceived wisdom that the carrier simply would not be allowed to fail. Indeed, the state has injected a total of $3.4 billion into the ailing carrier for precisely this reason: failure was unthinkable.

Air France has many strengths. France is an attractive business and leisure market. CDG has very considerable expansion potential, with an enviable geographical location and a direct link into Europe's growing high-speed rail system. The carrier enjoys a good market share, strong customer loyalty, and an increasingly confident and proud workforce.

But translating these strengths into consistent marketing and financial success, against tough competition, will be extremely difficult for a carrier which remains in state ownership.

Take just one example: alliances. Assuming that alliance groups like Star thrive, any European carrier without a US partner is going to have a tough time. Air France performs very well on the North Atlantic, and US feed into the CDG hub is of paramount strategic importance.

Air France has outline agreements with Continental and Delta, but neither will feel comfortable getting closely involved with a state-owned airline unless they know that privatisation is around the corner. Worse still, these alliances cannot be approved until a new US-France bilateral is signed, and what are the chances of France's left-wing government giving the US a more liberal bilateral, let alone an open skies deal?

There are no state-owned carriers in the Americas. Most European governments which own airlines plan to divest them as soon as they are financially strong enough. Privatisation is alive and well in Asia, and has begun in Africa. How can it be in Air France's best interests - or, indeed, in the best interests of the country as a whole - that Air France should continue to remain in public hands? There is only one sensible course of action for the French government - perform a U-turn and promise to sell Air France when market conditions are right.

Source: Airline Business