Nearly a quarter of a century after its creation under the Star Europe brand which quickly became Star Airlines before taking its current name in 2006, XL Airways and its 570 employees find themselves in an extremely difficult situation.

After surviving in a heroic manner to a multitude of blows for fifteen years, the French airline piloted by Laurent Magnin has declared this Friday, Sept. 20 in insolvency and will be placed in receivership in the hope of find a buyer.

XL Airways needs 35 million euros, not to spend the winter, but to implement the five-year plan it had set for itself. A plan that began to bear fruit since the company had managed to keep its budget forecast with a profitability found in July and August and especially a sharp rise in bookings for the next few weeks.

Overpriced and atomized French air transport

This bankruptcy comes after that of the company Aigle Azur. Placed in judicial liquidation September 16 with continued activity, it may close its doors permanently next week in case of insufficient recovery offer.

It is tempting to look for similarities in these two almost simultaneous events. The impact of the weight of charges in France and the specific taxation of French air transport is one of them. The atomization of the sector with the presence of several small companies (XL, Aigle Azur, Corsair, Air Caribbean, French Bee, Air Austral, Air Tahiti Nui, ASL Airlines …) is another. This French peculiarity in Europe prevents most of these companies from reaching a critical size. Combined with the weight of charges, this reality is a major handicap for foreign competitors.

XL Airways, a company with very low costs

However, beyond these structural problems, Aigle Azur and XL Airways are completely different. These differences are related to the history of each company, to the men and women who make it up in management, the unions, and their shareholders.

When Aigle Azur let its wage costs by signing collective agreements that are not very competitive with seafarers, especially pilots, XL Airways maintained a rigor in the costs that made it the French company with the most cost structure. sector bass with French Bee and Air Caraïbes. So much so that the previous management of Air France and Air France-KLM, in its desire to respond to low-cost long-haul, had planned in 2018 to take XL Airways under its wing. But the project flew with the surprise departure in May 2018 from the CEO of Air France-KLM Jean-Marc Janaillac.

XL Airways is a well-managed company, flown with panache for thirteen years by Laurent Magnin, an old airline transport operator who knows the area at his fingertips. Until 2016, despite several changes of incredible shareholders, the company has managed to remain profitable. That she was able to hold up here is already a feat. It owes it to its management and its employees.

While the detestable social climate was one of the reasons for the Aigle Azur fiasco, XL suffered no strike. Well aware of the fragility of their business, employees have lived in adversity. Their salary was notably blocked for eight years, said RTL Laurent Magnin.

There was also no leap forward as was the case at Aigle Azur with all-out openings of lines during the eighteen months, especially on the long-haul. Without an increase in own funds, such a strategy was suicidal. It burns too much cash, while it usually takes two to three years to make a long-haul line profitable. The eye on its cash, XL Airways has not opened a single new route for two years, except for a flight between China and France chartered at a good price by a Chinese tour operator.

Competitive pressure

Why did XL Airways have to file for bankruptcy? The company was hit hard by the arrival in Paris of the competition of low-cost long-haul companies from 2015-2016. Since then, this competition has continued to grow in power and pull prices down.

XL was attacked on all its markets (West Indies, Reunion, New York …), by Norwegian, Level and the French French Bee … Some fell last year as Primera Air or Wow Air, but the fiercest have remained. Thanks to several recapitalizations, Norwegian was able to stay in place. Well supported by its powerful shareholder, the IAG group (British Airways, Iberia, Vueling, Aer Lingus), Level continues to break prices from Paris. This low-cost competition was all the more prejudicial as it was combined with the equally formidable competition of conventional companies.

Result, XL Airways which chained up to the profits has plunged into the red. This upheaval in the competitive landscape is another difference with Aigle Azur, whose axis Franco-Algerian, its main market has not been affected with the same magnitude. Beyond the weight of taxation in France that Laurent Magnin has repeatedly denounced for years, other factors explain the inability of XL Airways to resist the competition of low-cost despite low costs.

Cabin configuration

The choice made for years of a monoclass fleet with A330-300 composed of a single economic class and a somewhat spartan service, played in this difficulty to generate satisfactory recipes. With 410 seats on some models (more than the certainly luxurious versions of A380s from some Asian companies), these densified aircraft were certainly unbeatable in terms of costs at headquarters. But, once the first fare classes were sold (the lower fares), the level of comfort was a handicap to sell more expensive tickets, equivalent to those of competing companies offering higher-end services.

Another handicap, XL Airways marketed until this summer all-inclusive tickets (luggage, meals), while its low-cost competitors have long been offering call prices not including certain services (such as luggage precisely), which are sold separately as an option. As a result, XL's call prices have often been relegated to the back burner in search engines, while in the end, once options were added to competitors' prices, their prices were often more interesting or at least the same. level. In recent months, XL has done as its competitors and the revenue is up again. In addition, the cabin renovation project (with the introduction of an improved economy class, called Premium, and improved services) was launched.

A complicated shareholder story

He accompanied a plan for renewal and development of the fleet. With only four wide-bodies, XL Airways was not critical. Laurent Magnin dreamed of moving to a fleet of about ten widebody carriers. Still, it was necessary to finance such a development. However, XL Airways has always suffered from complicated ownership.

In 2005, Star Airlines (the former name of XL Airways) was ceded to Raymond Lakah, a Franco-Egyptian businessman who had bought France Soir, then in 2006 passed under the thumb of the British group XL Leisure Group. The latter renamed the company XL Airways France and debauchery Laurent Magnin of Corsair to make the CEO.

In 2009, spared the collapse of XL Leisure Group, XL Airways France is taken over by the Icelandic bank Straumur, which sold it at the end of 2012 to X-Air Aviation, backed by US investment funds. Two years later, in 2014, after the refusal of shareholders to honor the recovery of a claim of 21 million euros to the company as they had committed, XL Airways obtains the judicial award of securities and owns his own shares. In other words, XL no longer has shareholders. The judge nevertheless asks the management to find by 2016.

Reconciliation with The Company

It's done at the end of 2016. The shareholders of La Compagnie, a 100% business-class long-haul carrier launched in June 2014, take over XL Airways and its tour operator Heliades.

These shareholders are forty in number, businessmen, families, some entrprises or institutional … We find including Charles Beigbeder, Cogepa, Michel Cicurel, the Belgian group SPDG, and, the most important of between them, Motier, the family holding Moulin, owner of Galeries Lafayette (20%). The last three are the most important. To note, Frantz Yvelin, the CEO of Aigle Azur, holds some shares.

When they take over XL without untied stock exchange, the shareholders are in a delicate situation. While they dreamed of reproducing the scenario of L'Avion, a carrier of the same type launched in 2006 and sold two years later 68 million euros to British Airways, they have already burned 60 million euros in The Company: 30 million euros for the launch and the same amount for a recapitalization. Led by Frantz Yvelin (who will later become the CEO of Aigle Azur), who founded L'Avion (led by an air transport personality, Marc Rochet), La Compagnie can not take off. Its attempt to position itself on the London-New York market has severely reduced the accounts.

The shareholders of The Company think then attaching it to XL Airways to generate economies of scale, even if the two companies have different models. To support this merger, the shareholders hand over an additional $ 10 million to the caisses. Which brings to 70 million euros their investment! Laurent Magnin is chosen to take control of both XL Airways and La Compagnie. Frantz Yvelin leaves the company and will head Aigle Azur a few months later.

Since this operation, the curves have crossed. The Company has recovered and is now heading towards financial equilibrium. XL Airways, on the other hand, saw its situation deteriorate. In the summer of 2018, the shareholders put 6 million euros in the pot and 12 million again in October 2018. This brings the bill to 90 million euros and even 95 million if we add the 5 million that had to be urgently injected this summer to solve engine problems on a La Compagnie aircraft.

The Company is not involved in the bankruptcy filing

For most individuals, foreign to the world of air transport, shareholders feel completely overwhelmed by this adventure. After the failure in recent days of negotiations with a Gulf company, they refuse to put their hand in their pockets. If they continue the adventure of The Company to try to resell the day when it will be profitable, they stop the costs with XL.

XL Airways also suffers from the depletion of shareholders worried by the drift of their contribution caused for the most part by The Company.

To continue the comparison with Aigle Azur, it is nevertheless difficult to blame the shareholders of XL Airways and the Company for not having supported their subsidiaries, while the responsibility of the shareholders of Aigle Azur, in particular the Chinese group HNA and David Neeleman , which held respectively 49% and 31% of the capital is huge in the collapse of the company. Apart from buying their stake (in 2012 for HNA and 2017 for David Neeleman), they have almost never put money back into a company that has never been at the heart of their concern. Worse, they encouraged the launch of the long-haul in 2018 without increase of own funds.

Last but not least, XL Airways was also unlucky.

Nearly being bought by Air France

Since 2017, management has sought to place XL Airways and The Company under the wing of a major operator. This was almost done with Air France. At the initiative of Air France, exclusive negotiations are being conducted for a stake of the French giant in the capital of XL. At the end of April 2018, the gradual transfer to Air France (which was planning to increase it to a size of 10 aircraft) was almost achieved. All documents were finalized. They specified the take by Air France of 40% of the capital of XL through a capital increase. Patatras, mid-May 2018 CEO of Air France-KLM, Jean-Marc Janaillac resigns after his referendum lost on the wage issue. This followed a latency period of four months before the arrival of Ben Smith at the head of Air France-KLM, which had other priorities to settle. The latter did not follow up and XL Airways, fully mobilized on this issue for more than 12 months, lost a precious year to find a company to rely on.

After this failure, a merchant bank, the same that had just sold the tour operator XL Airways Heliades, was mandated to find a solution. Despite various tracks, they could not be realized. Still remains the phase of judicial recovery to hope. XL Airways may appeal to investors for the lightness of its cost structure, its traffic rights portfolio or its presence at Roissy-Charles de Gaulle airport, one of the few major airports with growth potential.


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