The Merger of Air France-KLM

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The merger of Air France-KLM

1. Introduction 3

2. Cause of the problems faced by Air France-KLM post 2009 4

3. The organizational structure of Air France-KLM 5

4. Discussion of the ''Transform 2015'' program 6

5. Conclusion 7

1. Introduction

In 2004 the airlines Air France and KLM merged into a new entity known as Air France-KLM. Both the CEO's of the companies saw the need to merge because of the need for consolidation in the European aviation industry. It was a unique merger in the way that is was a cross border merger between companies with different nationalities and cultures. Both companies agreed upon retaining their own brands and remained mostly autonomous. Both the CEO's, Leo van Wijk (KLM) and Jean-Cyril Spinetta (Air France), treated each other as equals. They tried to look like a team to the outside world, and succeeded in this aspect.

In the initial years the results of the merged companies were great. It really seemed that the two companies had the much needed synergy to create the 1+1+3 effect. However, the global economic crisis of 2008 hit the aviation industry very hard. The operating profits were negative and the companies' debt rose to 6,5 billion euro's. Also Air France-KLM is facing problems with fierce competition from the low-cost airlines like EasyJet and Ryanair. It seemed that Air France-KLM was performing worse than other companies in the aviation industry.

Change was needed within the company to solve these financial problems. Therefore the ''Transform 2015'' program was announced in January 2012. This paper will review the cause of the problems of Air France-KLM and discuss both the organizational structure as the Transform 2015 program.

2. Cause of the problems faced by Air France-KLM post 2009

As stated in the introduction Air France-KLM (AF-KLM) has been struggling with financial problems since 2009. The economic crisis of 2008 has played a part in this, however it seems that AF-KLM is performing worse than other companies within the aviation industry. Therefore one must look into other possible factors that contributed to this poor financial performance.

Below in figure 1 the financial performance regarding operating profit and net profit is shown .

Figure 1 shows that in the first years of the merger the financial performance was good. Operating profits kept increasing every year while the net profit slowly reduced from 2006 till 2008. In 2007 AF-KLM had become the best performing company in the aviation industry regarding profitability. They had over 900 aircrafts and flew to 240 different destinations in 105 countries.

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