September 24, 2014 / 7:04 AM / 3 years ago

Air France low-cost Europe plan withdrawn, minister says

3 Min Read

The Air France logo is seen on the Air France headquarters building at the Charles de Gaulle International Airport in Roissy, near Paris on the second week of a strike by Air France pilots September 22, 2014.Jacky Naegelen

PARIS (Reuters) - French Transport Minister Alain Vidalies said on Wednesday that Air France-KLM (AIRF.PA) had withdrawn a project to expand its low-cost Transavia arm, apparently going further than the company's management which has sought to insist the plan is only suspended.

Pressure has mounted on Air France-KLM to drop the expansion plan in the face of a strike by pilots who are worried the low-cost unit will suck away jobs and erode their pay and conditions. Earlier this week it suspended the roll-out to the end of the year pending more discussions with unions.

The walkout entered its 10th day on Wednesday, with Air France expecting to operate only 46 percent of flights. The airline has said it is costing it up to 20 million euros ($25.70 million) a day.

"The Transavia Europe project has been abandoned," Vidalies told RMC radio. "It isn't suspended for three months, it's been withdrawn by management."

Reacting to the minister's words on Europe 1 radio, Air France chief executive Frederic Gagey echoed the words of parent company Air France-KLM's head Alexandre de Juniac earlier this week, saying the project may eventually have to be dropped, but only if talks with the unions fail.

"We have indeed withdrawn the idea of creating the offshoot, for now, so its clear, we have understood we have to re-explain the project (to the pilots)... so we have to discuss it with our social partners and find the conditions we need to relaunch it."

"Let's not play with words," he said. "If the talks go nowhere there will be no solution except to say we are not getting anywhere, and at this stage we cannot go forward with this development outside France."

The French state has a 16 percent stake in parent group Air France-KLM (AIRF.PA), and Prime Minister Manuel Valls has called for the end to a strike he fears will damage France's image abroad.

De Juniac has said the company's plan to expand Transavia in Europe is crucial to fight competition from other low-cost players.

Pilots' unions have threatened to prolong their walkout indefinitely as long as management presses ahead with the plan. The pilots fear that the move - particularly for those hubs that will hire pilots outside France in countries such as Portugal - will end up eroding their pay and conditions.

Shares in Air France-KLM were 0.6 percent firmer at 7.567 euros by 0748 GMT. The stock is down some 11 percent since the strike began.

Reporting by James Regan; editing by Andrew Callus

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