KLM submits restructuring plan to Ministry of Finance; job cuts, pay reductions and further cost-cutting

KLM Royal Dutch Airlines today submitted its restructuring plan to the Netherlands Ministry of Finance. The presentation of this restructuring plan was a key condition in obtaining a government loan and guarantees to the value of €3.4 billion. The plan outlines how KLM intends to overcome the worst crisis in almost 101 years in operation, explaining how KLM intends to fulfill the conditions imposed by the Netherlands government. The plan is currently under review at the ministry.

The presentation of the plan is a very important milestone. Substantively, the plan includes elements such as the reassessment of strategy, cost-cutting initiatives, financial considerations and how KLM staff will contribute by way of reduced employment conditions.

The basic principle of the restructuring plan is that KLM’s existing business model is still valid and valuable, but that far-reaching, structural initiatives are required to ensure KLM’s future success. Owing to the effects of the corona pandemic, KLM is preparing for an extended period during which fewer flights will be operated. The organisation will become smaller and less costly, as well as more sustainable, economical and efficient.

As KLM plays such an important economic and societal role in the Netherlands, the government has offered the airline a loan package, to which it has attached certain conditions. One condition is that KLM staff should contribute to KLM’s restructuring by accepting reduced employment conditions, amounting to income-dependent, graduated cutbacks of up to 20%. These reduced conditions will apply for the duration of the loan period.

KLM has now reached agreement with all unions for ground, cockpit and cabin staff on key principles of this plan for the period through 2022. This includes the unions VNC and FNV Cabine in the cabin domain and the unions FNV Luchtvaart, CNV, De Unie, VKP and NVLT in the ground domain, as well as the Dutch Airline Pilots Association VNV in the cockpit domain.

One of the other conditions imposed by the government is a 15% reduction in controllable costs. The KLM Works Council has been asked to advise on the downsizing and further simplification of the KLM organisation. In addition, there are more than 70 initiatives that will mainly reduce external costs. Significant cost savings will be achieved by phasing out leased aircraft and deploying a more efficient fleet. KLM is also meeting with suppliers and chain partners to contribute to cost reduction.

In terms of labour costs, KLM has already achieved savings by shedding jobs. KLM has already downsized by way of various measures, including non-renewal of short-term contracts (1,500 jobs) and a voluntary resignation scheme (2,000 jobs). By the end of the year, KLM will employ around 4,500 fewer people than it did before the corona pandemic.

Regrettably, further cutbacks cannot be excluded in view of the magnitude and gravity of the crisis. KLM has also reached agreement on a social plan with trade unions for ground personnel and cabin crew. The existing collective labour agreement for cockpit crew already provides a social plan.

Furthermore, KLM will reopen a voluntary resignation scheme targeting specific divisions and departments in order to minimise involuntary dismissals.

The KLM Works Council has reviewed and evaluated 37 requests for advice. The restructuring plan is ambitious and pressure ran high leading up to 1 October. The constructive contribution of divisional staff representatives and the Works Council deserves high praise. The Works Council’s positive advice on restructuring plans was subject to the successful negotiation of a social plan.