KLM SUBMITS RESTRUCTURING PLANS

Dutch government offers airline loan package with condition requiring staff to accept reduced employment conditions.

KLM Royal Dutch Airlines submitted its restructuring plan to the Netherlands Ministry of Finance. The presentation of this restructuring plan was a key condition in obtaining a government loan and guarantees to the value of EUR 3.4 billion.

The plan outlines how KLM intends to overcome the worst crisis in almost 101 years in operation, explaining how KLM intends to fulfil the conditions imposed by the Netherlands government. The plan is currently under review at the ministry.

The presentation of the plan is a very important milestone. Substantively, the plan includes elements such as the reassessment of strategy, cost-cutting initiatives, financial considerations and how KLM staff will contribute by way of reduced employment conditions.

“Today we took a major, exceedingly important step towards restructuring KLM. The plan we submitted to the Ministry of Finance today is a condition for obtaining a financial package, making this an important milestone in KLM’s recovery. The aim is to ensure that KLM survives this crisis and emerges stronger than before. The measures are far-reaching and painful for KLM staff, but they are necessary.” said KLM President-directeur & CEO Pieter Elbers.

The basic principle of the restructuring plan is that KLM’s existing business model is still valid and valuable, but that far-reaching, structural initiatives are required to ensure KLM’s future success. Owing to the effects of the corona pandemic, KLM is preparing for an extended period during which fewer flights will be operated. The organization will become smaller and less costly, as well as more sustainable, economical and efficient.

As KLM plays such an important economic and societal role in the Netherlands, the government has offered the airline a loan package, to which it has attached certain conditions. One condition is that KLM staff should contribute to KLM’s restructuring by accepting reduced employment conditions, amounting to income-dependent, graduated cutbacks of up to 20%. These reduced conditions will apply for the duration of the loan period.

KLM has now reached agreement with all unions for ground, cockpit and cabin staff on key principles of this plan for the period through 2022.

One of the other conditions imposed by the government is a 15% reduction in controllable costs. The KLM Works Council has been asked to advise on the downsizing and further simplification of the KLM organization. In addition, there are more than 70 initiatives that will mainly reduce external costs. Significant cost savings will be achieved by phasing out leased aircraft and deploying a more efficient fleet. KLM is also meeting with suppliers and chain partners to contribute to cost reduction.

In terms of labor costs, KLM has already achieved savings by shedding jobs. KLM has already downsized by way of various measures, including non-renewal of short-term contracts (1,500 jobs) and a voluntary resignation scheme (2,000 jobs). By the end of the year, KLM will employ around 4,500 fewer people than it did before the corona pandemic.

Regrettably, further cutbacks cannot be excluded in view of the magnitude and gravity of the crisis.

KLM has also reached agreement on a social plan with trade unions for ground personnel and cabin crew. The existing collective labor agreement for cockpit crew already provides a social plan. Furthermore, KLM will reopen a voluntary resignation scheme targeting specific divisions and departments in order to minimize involuntary dismissals.

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