AMSTERDAM - KLM Royal Dutch Airlines would like to reduce its contributions to its 8.26 billion guilder ($4.74 billion) pension fund, but unions representing KLM workers are wary of any further reductions.
Whether KLM will be able to reduce contributions or extend its pension holiday will hinge on negotiations with its unions this fall. Employees agreed to the current holiday in the face of significant losses, but might not be willing to do so again now that the airline is recording a profit.
The move is one of several by Dutch companies to reduce or eliminate their pension contributions. Unilever N.V., Royal Nedlloyd Group N.V. and Philips N.V. all have reduced or cut contributions in recent years, sources said.
KLM is enjoying a 21-month contribution holiday that saved the company 291 million guilders ($166 million) in the fiscal year ended March 31. But KLM is due to resume contributions next year, and its president, Pieter Bouw, told reporters recently the company wants to ensure a large surplus does not build up again.
His remarks were widely reported as meaning the company wants to extend the contribution holiday for another year. Unions swiftly opposed an extension, saying it might endanger the security of pension benefits.
"We have said a new pension holiday is a step too far," said Henk Onstwedder, a union official representing KLM transport workers.
But Peter Wellhuner, a company spokesman, said that was not exactly what Mr. Bouw had said. Rather, the issue will have to be discussed with the pension fund trustees and union officials, Mr. Wellhuner said. Then parties would have to negotiate how high contributions should be, he explained.
A permanent reduction in contributions could be met favorably by investors, as opposed to one-time contribution holidays. "I would rather see a structural reduction," said Willemien Rijsdijk, an analyst with Van Meer James Capel in Amsterdam.
The contribution was critical to KLM's performance last year, enabling it to post a 103 million guilder net profit after a 562 million guilder loss the previous year.
"Without the holiday, the results would clearly be in the red," Ms. Rijsdijk said.
The savings from the contribution holiday are "quite significant," agreed Corne Zandbergen, an analyst at Bank Labouchere, Amsterdam. The pension holiday saved the company 75 million guilders a quarter in costs, compared with quarterly payroll of 550 million guilders, he said.
Buoyed by strong markets, Dutch funds generally are overfunded and able to reduce their contributions. The WM Netherlands Pension Fund Universe returned 50.8% on a cumulative basis between 1991 and 1993.
KLM posted a profit of 122 million guilders in its first quarter ended June 30, up sharply from 40 million guilders a year earlier. Mr. Zandbergen projects the airline will turn a profit of 300 million guilders to 350 million guilders.
But experts noted it still is early in the labor negotiation process. Wage demands have yet to be presented, although analysts expect unions will seek increases in line with annual inflation of 2% to 3%, while the company will seek to avoid any pay increases.
The pension issues are "preliminary salvos," said Adrian Putters, consulting actuary, The Wyatt Co., Amsterdam.
The funding level of KLM's three pension plans also will be critical to discussions. One KLM official said a contribution holiday to all three plans would not be possible.
The least well-funded of the plans (at 106.6%) is the 3.52 billion guilder KLM General Pension Fund Foundation, representing ground personnel and management employees. Much better funded, at 117.8% each, is the 4.36 billion guilder KLM Air Crew Pension Fund Foundation and the 377 million guilder KLM Cabin Staff Pension Fund Foundation.
J.W.E. Storm van's Gravesande, general secretary for the pension funds, said the holiday has not affected investment policy of the largely internally managed fund. He declined to comment on the contribution issue.