Dutch dirigisme gives France a corporate shock

It is hard not to relish the irony. The Netherlands, a cheerleader for open markets and free enterprise, this week dispensed a dose of dirigiste medicine to the French state. Over a number of days, the Dutch government spent €744m to build a 14 per cent stake in the airline Air France-KLM, informing its French counterparts, who also hold 14 per cent, only at the last minute. The reaction in Paris, already exasperated by Dutch resistance to French eurozone reform plans, was indignant, with officials accusing The Hague of acting like a corporate raider.

“It is essential to respect the principles of good governance and that Air France-KLM is managed in the spirit of business interest without national state interference,” fumed Bruno Le Maire, France’s finance minister, apparently without the slightest blush.

Speaking after peace talks in Paris on Friday, Wopke Hoekstra, Mr Le Maire’s Dutch counterpart, conceded his swoop was unorthodox but insisted it was based on good intentions with the aim of making the carrier more competitive. If the reaction of investors is anything to go by, after they dumped Air France-KLM shares this week, he needs to be a lot more convincing.

The Franco-Dutch flag carrier has been a troubled enterprise ever since its creation in 2004. At that time, the French wing was much the strongest and the French state fully in control. The two airlines operated independently under a joint holding company according to guarantees on hubs that expired in 2012. Tensions over governance and the status of Amsterdam’s Schiphol and Paris Charles de Gaulle airports have dogged the company ever since. It is now Air France, with its appalling labour relations, that looks the weaker part of the group while KLM is four times as profitable, another source of resentment. Meanwhile passenger numbers at Schiphol, still 100 per cent state-owned, have grown more quickly than in Paris.

Air France-KLM last year appointed Ben Smith, a Canadian with airline experience, as chief executive. The new boss has already eased tensions with Air France staff and is now seeking more streamlined governance. It was, it seems, his attempt to secure a seat on KLM’s board, clashing with its Dutch head, that prompted The Hague to act.

Contrary to their Hanseatic free-trading self-image, the Dutch are quite adept at fending off oversees acquirers. Political resistance helped to scupper foreign takeovers of telecoms group KPN, the postal group PostNL and paint-maker Akzo Nobel. The difference is The Hague is now more upfront about it. The government is even preparing a bill allowing the board of any listed company to freeze an attempted hostile takeover for 250 days.

The Dutch move to strengthen its influence over Air France-KLM shows its concern with nurturing a major airport hub such as Schiphol at a time when its entrepôt economy is exposed to Brexit, international trade tensions and the unravelling of supply chains. It also highlights the inherent instability of cross-border mergers with a loose corporate structure. The French know this better than anyone from the recent travails of Renault and Nissan. This should be a lesson for EU leaders who advocate more European industrial champions.

Lastly, the Dutch move proves we live in interventionist times. US protectionism, Chinese state capitalism and a clamour for less naivety in Europe about its open markets, with Germany warming again to an activist industrial policy, make it irresistible for governments to jump in and protect their corporate interests. Dutch dirigisme? Sacré bleu.