The French Finance Minister on Sunday raised the pressure on Air France managers and unions to resolve a stand-off over wages, saying the government would not ride to the carrier's rescue as it grapples with worker strikes and a leadership vacuum.
The dispute at Air France-KLM's French arm intensified on Friday when staff rejected a pay deal, prompting the group's chief executive to resign and raising questions over the airline's capacity to cut costs and reform.
Finance Minister Bruno Le Maire urged the company and workers to resume talks, delivering a blunt assessment of the airline's future as he warned the state's 14 per cent Air France-KLM stake was no guarantee it would pick up the pieces.
"If Air France does not make efforts to become more competitive, allowing this flagship to be at the same level at Lufthansa and other airline companies, Air France will disappear," Mr Le Maire told BFM television.
"We're minority shareholders ... those that think that whatever happens the state will come to Air France's rescue and soak up Air France's losses are mistaken," Mr Le Maire said.
Air France-KLM chief executive Jean-Marc Janaillac, who will stay on until May 15, had been battling to cut costs to keep up with competition from Gulf carriers and low-cost airlines.
Rivals like British Airways and Lufthansa have already gone through painful restructurings to cope.
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Air France-KLM CEO to step down after pay offer rejected
This one-hour flight is the world's busiest route
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Air France-KLM, which reported widening losses in the first quarter even as profits at Dutch carrier KLM improved, has reined in growth expectations for 2018 after walkouts at the French airline.
Strikes have already cost the company €300 million ($359 million) and stoppages by pilots, ground staff and other workers are due to resume on May 7 and 8. Close to 85 per cent of flights are likely to run on Monday, the carrier said.
Air France-KLM's board is set to announce an "interim governance solution" on May 15 following Mr Janaillac's departure. The company declined to comment further on what format that would take or how long the transition would last.
Delta Airlines and China Eastern both hold 9 per cent of Air France-KLM.
Until new management plans are in place, Air France executives lack a mandate to continue negotiations with unions, prolonging the dispute.
Some worker representatives hit back at Mr Le Maire on Sunday, after he called their demands unjustified.
Unions had been calling for a salary hike of 5.1 per cent in 2018 alone, and staff rejected a management pay deal offering 7 per cent wage increase over four years.
"Our demands are far from astronomical," Yannick Floc'h, vice-president of the SNPL pilots union, told BFM TV later in the day, adding there was room to find middle ground between the two sides. "I think we can find a way out."
Others, including the more moderate CFDT union, which had urged Air France to back management's pay proposal, warned that "dialogue was blocked" and said the SNPL was too inflexible.
"There's reason enough to be worried," CFDT leader Laurent Berger.
The Air France turmoil has coincided with other strike action as rail workers press on with rolling stoppages to protest President Emmanuel Macron's planned overhaul of SNCF, the state-run train operator.
French travellers have faced transport misery since early April, and Mr Le Maire said the drag on economic growth from the strikes stood at around 0.1 percentage points of output as tourism and the transport of raw materials took a hit.
Representatives from Air France unions are due to meet on Monday. French Prime Minister Edouard Philippe is also due to meet rail unions for talks over the SNCF stand-off.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Mohammed bin Zayed Majlis
