France's "second pole" airline, the merged AOM-Air Liberte, has endured months of crisis and uncertainty, but there may now be light at the end of the tunnel

Despite possessing a vast civil aviation market, France's secondary airlines are still fighting their way through an economic maelstrom. While Air France turns in its fourth consecutive year of bumper profits, the much-vaunted "second pole" of the merged AOM-Air Liberte, set up to compete with the giant national flag carrier, has singularly failed to shine for investors and institutions alike.

The original French combination of Swissair Group-owned Air Littoral, AOM-Air Liberte, has endured an almost permanent state of crisis - including bankruptcy protection - ever since the Zurich carrier decided to amalgamate the triumvirate as a competitor to Air France.

Profound union unease with various management plans to restructure the airlines, including the merger of long-haul specialist AOM and former British Airways subsidiary Air Liberte, has manifested itself in numerous strikes, runway occupations and massive inconvenience to passengers.

A way out of the impasse appeared to have been found with the news that the Canadian bank CIBC-backed bid of Holco - led by Air France captain Jean-Charles Corbet and former Air France cargo boss Francois Bachelet as chief executive officer - had succeeded in convincing the authorities of its acumen. Fifteen bids were submitted, including one from ex-CEO Marc Rochet, which provoked the unions to threaten a strike if his plan was accepted.

The unions remain to be convinced that the 1,405 redundancies envisaged out of a total of 4,559 employees, coupled with a swingeing fleet reduction and imminent name change, will provide the necessary security.

But Bachelet cites the pilot unions' willingness to warn management well in advance of any unrest as proof that industrial relations have already improved. He has also proposed a 10% flightdeck salary cut in exchange for shares.

Job cut rumours

Although the number of redundancies is an improvement on the wildly fluctuating rumours of job cuts circulating in Paris this summer, it is nonetheless far from clear who, if any, of those affected may be taken on by other airlines or companies, although Air France, Corsair, French national rail company SNCF and La Poste have been mooted as potential recruiters.

Any hopes the pilot union SNPL may have of Air France taking up the employment slack may be short-lived, however. The French flag carrier says: "There is the possibility of some limited recruitment [of AOM-Air Liberte staff] but Air France is totally independent. Jean-Cyril Spinetta [Air France chairman] has said he will look at the company's needs, but we have not received an avalanche of applications yet."

Unions representing all facets of AOM-Air Liberte have asked their members to come forward if they want to volunteer for redundancy and about 300 have done so.

But the unions have not exactly endeared themselves to potential investors during the prolonged bankruptcy protection talks. Toulouse-based Aeris, headed by businessmen Charles Rossignol and Jean Felix, submitted a Fr50 million ($6.8 million) bid for the charter arm of AOM-Air Liberte but finally withdrew, citing "the cost-structure of AOM-Air Liberte, the attitude of the unions and the level of salaries, [which are] some 40% above that of the market".

In desperation at this unrest and following its own financial problems, Swissair decided to cut its losses and hive off the newly-formed French "pole", although it received scant support from majority shareholder Marine Wendel Taitbout Antibes. Following interminable negotiations and after extracting a guarantee that this would be the end of its commitments to its French subsidiary, the Swiss company finally agreed to inject Fr1.3 billion into AOM-Air Liberte in stages, although Corbet and Bachelet are believed to be seeking further investment of between Fr500 million and Fr800 million.

Bachelet is confident such potential investors will come forward, saying: "We are capable of attracting risk capital, but we have some extra time now with the Swissair funds."

The airline will regroup around a reduced fleet of 11 McDonnell Douglas DC-10s and 18 Boeing MD-83s, but the previously uncertain future of the Airbus A340s in its fleet has at least been clarified. Two existing A340-300s and two A340-200 aircraft on preferential lease rates from Swissair will remain, and two more A340s will arrive during 2003 as the ageing DC-10s are gradually replaced.

Like Air France, AOM-Air Liberte has suffered from the emergence of France's TGV high-speed train and cites this as the reason why it has withdrawn from domestic destinations such as Marseille, Montpellier and Bordeaux. With all of those cities now just three hours or so from Paris, passengers have been turning increasingly to the train - especially during the turbulent recent past of the Orly-based carrier. One piece of good news, however, may be the re-emergence of services to Algeria in the absence of Air France because of security considerations, possibly by this winter.

As Air France unveiled its sparkling profits for 2000 in May, chairman Spinetta said that although he wanted to see a second scheduled competitor operating from what the French refer to as the "Hexagone", the flag carrier could not influence the commercial environment. This is particularly true of the so-called "DOM-TOM" (Dominions et Territoires Outre Mer) - far-flung departements of France such as La Reunion, Nouvelle Caledonie and Guadeloupe - which rely heavily on airline support from AOM-Air Liberte, Air France and charter airline Corsair.

Residents of these French outposts are worried at the level of service that would exist if AOM-Air Liberte folded. Spinetta says Air France already provides about 42% of available seat capacity to the islands and it would be difficult to provide more. For its part, the French Government - in tandem with the population of its overseas territories - has voiced concern that the island departements will suffer, but AOM-Air Liberte is seeking to reassure worried businesses reliant on tourism that it will more or less continue its current route structure. Bachelet says: "The long-haul network is not really affected, apart from La Cayenne."

It is possible that Air France and AOM-Air Liberte may codeshare on certain routes - perhaps those to overseas French territories - but nothing is decided yet. The French media - for whom the whole AOM-Air Liberte saga has assumed daily headline proportions - has been reporting in scrupulous detail the unease felt by residents of Fort-de-France, La Cayenne, Pointe-a-Pitre and Saint-Denis-de-la-Reunion, among others, who are keen to state their case for an air bridge to Paris.

Route structure

Network details following Holco's takeover are still sketchy. The SNPL notes: "We don't know if they [Holco] know the route structure yet and it is difficult to obtain precise information." Cayenne, in French Guyana, has already been withdrawn, however, although Air France has taken over the route.

Even as AOM-Air Liberte fights for survival, other airlines are circling hungrily, anticipating a significant tranche of the airline's slots becoming available at the southern Paris base of Orly. Notoriously hemmed in by urban development, Orly is strictly slot-constrained and UK low-cost carrier EasyJet has expressed interest in acquiring up to 8,500 slots. The airline is already highly visible at Nice on the Cote d'Azur, from where it serves Amsterdam, Geneva, Luton and Liverpool.

EasyJet chief executive Ray Webster confirms: "We are interested in developing Paris Orly as a major base airport. We hope to have a positive answer from the relevant authorities."

The French civil aviation bodies are due to meet to discuss AOM-Air Liberte's certificate of transport "possibly in September", according to sources, although given French transport secretary Jean-Claude Gayssot's strenuous efforts to avoid any eventual liquidation, this may be no more than a formality. Gayssot's public support for the carrier has helped reassure its employees, to a certain extent, that there is a future for the struggling airline.

Such has been the turmoil at AOM-Air Liberte in the past few months that there are many who doubted the carrier would reach even this stage. But with the cash from Zurich, the restructuring envisaged by Corbet and Bachelet, plus the tacit support of a French government keen to reaffirm its commitment to its overseas territories, the carrier may just have a chance. n

Source: Flight International