AF Air FranceKLM

PARIS— The French arm of Franco-Dutch group Air France-KLM plans to unveil a steep cost-cutting plan, the carrier announced Thursday after failing to reach an agreement with pilots.

The board of Air France met Thursday and formally instructed management to come up with new cuts to the carrier's loss-making operations by Oct. 5. No details were provided on the forthcoming plan.

The decision came in response to a breakdown in negotiations with pilots' unions. Talks between the unions and Air France initially aimed to trim €170 million ($190 million) annually over the next three years. But pilots refused to fly more hours for the same pay, casting the demand as an effective pay cut.

The clash underlines the difficulty Europe's legacy airlines face in making their operations lean and flexible enough to compete with budget airlines. At the same time, Gulf carriers are eating up market share on more expensive long-haul travel to Asia.

Despite rising sales, Air France remains in the red this year because of a weak euro and declining demand in emerging markets.

For months, the company's chief executive, Alexandre de Juniac, has been stepping up pressure on the French unions to accept his five-year plan, dubbed Perform 2020, which calls for deep cost cuts and an expansion of the budget brand Transavia.

Unless that plan is implemented, Air France will have to slash loss-making airport connections, leading to significant layoffs, management warns.

Air France's pilots cost 25% more than those of European competitors, management says.

So far, pilots have stood their ground. A 14-day pilots strike in September 2014 cost the company €416 million in lost sales.

Write to Inti Landauro at inti.landauro@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 01, 2015 14:05 ET (18:05 GMT)

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