As KLM scales down its investment in Kenya Airways, it is involved in another aviation mega-deal. Air France-KLM is buying a 31% stake in Virgin Atlantic as part of a series of deals that look set to shake up the airline world.
- Delta Air Lines becomes the largest shareholder at 49 percent in Virgin Atlantic and founder Richard Branson cedes control. He will retain a 20% stake through his Virgin Group and the airline will continue to fly under the Virgin brand.
- Delta Air Lines will take a 10% stake in Air France-KLM with the three airline companies coming together to create a single global joint-venture.
- China Eastern Airlines will also take a 10% stake in Air France-KLM.
- Air France-KLM’s investment in Virgin Atlantic will cost around $287 million (£220 million), while the two 10% stake sales are being valued at $981 million (€751 million) each for Delta and China Eastern.
The long-term aim of the deals is to bring the two pre-existing joint ventures—Air France-KLM, Delta and Alitalia, and secondly Delta and Virgin Atlantic—within a single joint-venture. The goal is that all the companies work more closely together, helping them fly more passengers to more destinations at a lower cost (to themselves). Plus, Air France’s balance sheet gets a makeover.
While Virgin has been struggling, as shown by the modest transaction price, it has one very attractive asset: landing slots at London’s crowded Heathrow airport, where passengers tend to pay higher fares
Meanwhile, some tension has been cited in the partnership between KLM and Air France.
- A clash of national cultures and an inability to understand each other’s languages threatens to make the merged Air France-KLM group of airlines unmanageable, according to a leaked internal company report.
- French staff in the Franco-Dutch company complain their colleagues from the Netherlands are money-grubbing, while the Dutch regard the Air France staff as aloof, according to the report. Among the petty grievances, there is irritation that a KLM employee working in Paris is charged €10 for lunch in the canteen, while an Air France colleague pays only €4.