What Is In KLM’s Restructuring Plans?

KLM submitted its restructuring plan to the Dutch government yesterday. The presentation of this plan was a key condition for KLM in obtaining a government loan and guarantees worth EUR 3.4 billion.

The airline called the coronavirus crisis the worst crisis in its 101-year history. The restructuring plan that was presented to the Dutch Ministry of Finance yesterday contains various measures in the areas of cost savings, strategy, and working conditions. According to KLM, its business model is still successful, but far-reaching measures are needed to make the airline operate more successfully again in the future.

A controversial condition for receiving the state aid is the measure that, depending on the level of income, employees should forfeit up to 20 percent of their salary. KLM has reached general agreements with the ground, cockpit and cabin crew unions. For ground and cabin crew it has been decided that, with a few exceptions, employees will not receive any pay rise for the time being. Employees earning over 1.5 times of the middle income must, according to union CNV, give up part of their salary.

On Thursday evening, just in time, KLM reached an agreement with the pilots union. The forfeiting of salary by pilots was a strict requirement set by the Dutch government. Few details have been disclosed about this agreement. Promised salary increases will not be implemented for pilots. In addition, the employees with earning the highest incomes, including pilots, must give up a thirteenth month of salary and any shares of KLM’s profits.

In total, the salary savings should save KLM EUR 180 million. The airline has already reduced the number of jobs: not renewing temporary contracts and voluntary departure schemes have already resulted in 3,500 “layoffs”. At the end of this year, the company says it will employ 4,500 fewer employees than before the coronavirus crisis. KLM does not rule out further redundancies which might result from the crisis and states that it will reopen the voluntary departure scheme across certain departments.

The government further required that KLM should achieve a saving of 15 percent of “controllable costs”. To this end, the KLM organization will be further reduced and simplified. According to the company, there are more than 70 initiatives to reduce external costs by, among other things, phasing out lease aircraft and operating a more efficient fleet.

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. I am grateful for the support of the Netherlands government and proud of the efforts of all involved – KLM staff, our Works Council and trade unions – who worked together to achieve this result.

Pieter Elbers, KLM CEO