Air France to cut 5,000 jobs

PARIS Thu Jun 21, 2012 6:07pm BST

Passengers check-in at Air France desk in Nice International airport February 7, 2012 as the main pilots' union and Air France's top unions called for a four-day strike across the aviation sector to protest against a draft bill aimed at ensuring a minimum service for air travellers during industrial action. REUTERS/Eric Gaillard

Passengers check-in at Air France desk in Nice International airport February 7, 2012 as the main pilots' union and Air France's top unions called for a four-day strike across the aviation sector to protest against a draft bill aimed at ensuring a minimum service for air travellers during industrial action.

Credit: Reuters/Eric Gaillard

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PARIS (Reuters) - Air France announced more than 5,000 job losses under a cost-cutting plan on Thursday, creating a political headache for new President Francois Hollande.

The cuts at the French flag carrier, part of the loss-making Air France-KLM Group, come as the world's airline industry grapples with limited growth prospects, rising costs and fallout from the euro zone debt crisis.

But Hollande's Socialist government, in place since last month, has pledged to counter rising unemployment by making it prohibitively expensive for companies to lay off workers.

To try to minimise the impact of the job cuts on a workforce of 70,000, partially state-owned Air France promised to avoid forced layoffs, encouraging early retirement, voluntary departures, part-time working and work-sharing.

But it said forced redundancies would be unavoidable if unions refused to support management's plans. The job losses will be made by the end of next year.

"Air France is facing a fundamental choice about its future," Air France Chief Executive Alexandre de Juniac said in a statement as he met the airline's works council.

"If we all make the necessary equitably distributed efforts, there will be no forced departures."

This did little to reassure union leaders who fear Air France could use the threat of wider layoffs to wring concessions from the workforce.

"Before we come to any agreement, we want an assurance that there will be no compulsory redundancies until 2015, unless there is a major event," said Beatrice Lestic, general secretary of Air France's CFDT union.

SHARES RISE

Shares in Air France-KLM, previously down 13 percent this year after a plunge of over 70 percent last year, rose as much as 7.9 percent on news of the job cuts. They closed the day up 5.5 percent higher, the biggest gainer on the broad French SBF120 index.

Air France-KLM and Europe's other older carriers have been confronting losses in short-haul operations as the continent's economy has taken a battering.

The Franco-Dutch group unveiled a three-year plan in January to reduce debt and operating costs by 2 billion euros ($2.5 billion) in an effort to break even in 2014.

Air France-KLM, which has a combined 103,000 workers, says labour contracts stop it heading off competition from low-cost carriers, including Britain's easyJet.

Meanwhile, airlines expect any benefit from falling oil prices to be wiped out by Europe's worsening economic prospects.

Air France-KLM's German rival Lufthansa announced 3,500 administrative job cuts around the world last month.

The Air France job cuts are a blow to Hollande's government, which is fighting unemployment of 10 percent - its highest this century - and plans new rules to make it harder to fire workers.

The government and unions fear a wave of layoffs from companies that did not want to make them during the politically sensitive election period.

Labour Minister Michel Sapin, who has said the government's aim is to "make layoffs so expensive for companies that it's not worth it", told Europe 1 radio on Thursday that he supported negotiations between management and unions to save Air France.

"Management is saying that if nothing is done, this great company risks collapsing," Sapin said. "It's not 'if nothing is done the dividends will decline', it's not about profitability."

(Editing by Lionel Laurent and Matthew Tostevin)