Airline pilot hopes to nurse AOM/Air Liberté back to health

 - May 9, 2008, 5:06 AM

French regional airlines AOM and Air Liberté have escaped the jaws of bankruptcy through their purchase by an Air France pilot. The airlines–formerly owned by SAirGroup and French investment firm Taitbout Antibes–expect to shed 1,800 jobs, restructure and adopt a new name as part of a plan to form a viable rival to Air France. Meanwhile, Air Littoral, the third French airline once under the SAir umbrella, plans to sell airplanes, reduce routes and downsize to improve its health.

The long-running saga to establish the three airlines as a competitor to Air France culminated at the end of July when the commercial court of Créteil, near Paris, accepted the offer of Holco–a company established by Air France pilot Jean Charles Courbet and backed by Canadian investment bank CIBC. Air Littoral narrowly escaped bankruptcy when the airline’s former boss, Marc Dufour, took over the company in July.

Holco beat out the offer of financial company Fidei, which is 49 percent owned by U.S.-based Leucadia. Marc Rochet, the AOM/Air Liberté president who subsequently presented a rescue plan opposed by the airline’s unions, maintained a business relationship with Fidei for the purpose of an earlier takeover bid.

AOM and Air Liberté, a single, but as yet unmerged entity, filed for insolvency in mid-June, after it accumulated net losses of $400 million. The airline obtained court protection from creditors, and operated under observation for three months under the management of independent administrators.

The decision to award the airlines to Holco won the almost unanimous endorsement of the airline’s works council and 11 of the 12 pilots’ unions despite deep concern over jobs.

The plan retains 2,706 employees of the total 4,559 workforce, and several hundred employees have voluntarily left the company. The 2,706 employees that remain–224 fewer than in Courbet’s initial plan–include 385 pilots, 864 flight attendants, 1,069 land-based staff and 388 working for airport assistance, maintenance and catering subsidiaries.

SAirGroup, which owned 49.5 percent of the three airlines, will incur total exit costs of $266 million, including a $173 million cash contribution to restructure AOM/Air Liberté, a refund of $26.6 million for outstanding tickets and $70.6 million in savings on a 10-year lease of Airbus A340 by its Flightlease subsidiary. In exchange, the new airline will not take any future legal action against the two former shareholders. According to the unions, Holco’s capital and Swissair’s exit costs still leave the new company with a $66.7 million shortfall.

AOM and Air Liberté will complete their merger and assume a new name before this fall. They plan to immediately reduce their present fleet of 50 aircraft to 31 (18 MD-83s, 11 DC-10s and two Airbus A340s) and finally to 28. The merged company will also reduce its regional routes and those to France’s overseas territories.

Courbet, former president of the SNPL pilot’s union chapter at Air France, has convinced the regional’s pilots to agree to delay any union action during Holco’s restructuring period and accept a 4-percent salary reduction in exchange for 34 percent of the shares, valued at $17.3 million, by the end of this year.

Holco plans to embark on a major restructuring exercise under François Bachelet, a former top Air France cargo manager. This will entail a complete merger of Air Liberté and AOM and the thorny issue of aligning the conditions of the two companies’ workforces. One major question involves the future of the 1,853 employees to be dismissed.

The new airline maintains a three-year code-sharing agreement with Air France covering France’s overseas territories of Guadeloupe and Martinique in the Caribbean, Tahiti in the Pacific and the Indian Ocean island of La Réunion, due to come into effect with winter schedules on October 28. The deal will account for 16 percent of the company’s income. Nevertheless, Bachelet insisted that competition remains the top priority and that the saved airline aims eventually to control 30 percent of the market.

An optimistic Courbet said new investors were waiting to see if the new team could turn the airline’s fortunes around. He added that CIBC has contacted “about 10 investors.” The new airline controls funds to last 18 months and Courbet is “convinced” the new company will turn a profit of $30.4 million on revenues of $912 million by 2003.

Meanwhile, Montpellier-based Air Littoral has cast the basis for its reinvented takeoff under Dufour following workforce approval of a two-year plan to return the airline to financial health. The airline plans to increase its capital by $111 million. The workforce will lose 263 of its 1,180 employees, including 80 pilots. Air Littoral expects to shed 25 percent of its existing regional routes but plans to maintain its southern French hubs of Nice and Montpellier.

It expects to keep 32 aircraft (17 CRJs, five Fokker 70s and 10 ATR 42-500s) of its present fleet of 17 CRJs, 14 ATR 42-500s, six Raytheon Beech 1900Cs, five Fokker 70s, two Fokker 27s and one Fokker 100. The Fokker 100 will be withdrawn after the summer season while three ATRs are to be chartered to Algeria’s Tassali Airline, two ATRs chartered to Swissair and five F-70s going to Air France (three for charter flights and two for use on domestic routes).