Koninkluke Luchtvaart Maatschappu, N.V. (Klm Royal Dutch Airlines)

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Koninkluke Luchtvaart Maatschappu, N.V. (Klm Royal Dutch Airlines)

55 Amsterdamseweg
Amstelveen
The Netherlands
(020) 499123

Public/State-owned Company
Incorporated: October 7, 1919
Employees: 19,193
Sales: Dfl 5.65 billion (US$ 2.50 billion)
Market value: Dfl 1.78 billion (US$ 791 million)
Stock Index: New York, Amsterdam

Royal Dutch Shell, Philips, Fokker, and DeBeers are just a few Dutch companies with international reputations. The Dutch airline KLM is no less important a member of that group. As the national flag carrier KLM is the country’s most obvious commercial ambassador and serves 119 destinations in 75 countries on six continents.

KLM was organized by a young aviator lieutenant named Albert Plesman. In August and September of 1919 Plesman, with the financial support of an Amsterdam shipping company, sponsored the “Elta” aviation exhibition in Amsterdam to satisfy the public’s fascination with the airplane. Over half a million people attended the air show. When it closed a number of Dutch commercial interests decided to establish a Dutch air transport company and Plesman was nominated to head the company.

The Royal Dutch government lent its support to Pies-man’s project by offering to allow him use of the title Koninklijke, meaning “Royal,” in the company’s name. On October 7, 1919 the Koninklijke Luchtvaart Maat-schappij, or “KLM,” was founded in The Hague. It was one of the world’s first commercial airline companies. In its early years KLM transported passengers, freight and mail to a growing number of European destinations linking Dutch cities with London, Paris, Oslo and Athens. At that time the Netherlands had a world-wide empire with colonies in Asia and the Caribbean. Soon KLM was charting routes to link these colonies with Holland. Services to Curacao and Trinidad were opened, and in 1927 KLM established a route from Amsterdam to Bat avia (later Djakarta) on the island of Java in Dutch Indonesia. The 8700 mile trip took eleven days.

At the start of World War II German armies invaded the low countries and closed KLM operations. Plesman was understandably upset by the occupation and frustrated with his inability to convince the Germans to relax their grip on the Netherlands. One summer night Plesman’s determination to take action led him to awaken one of his house guests, a Swedish KLM pilot named Count von Rosen. Plesman asked the Count, “What can I do to stop this?” Von Rosen replied, “You could talk to my Uncle Hermann.” Suddenly Plesman realized he was speaking to the nephew of the German Reichmarschall Hermann Goering. A few days later Plesman was in Berlin discussing the possibility of a peace treaty between England and Germany with Goering.

Plesman formulated a document which was later forwarded to Churchill’s office in London. The peace terms would leave the British Empire intact, but give Germany control of the European continent and the United States control of the Americas. The matter was “studied with much interest” and receipt of the document was acknowledged by Lord Halifax. Goering, however, became displeased with Plesman’s initiative and later had him jailed. He was released in April of 1942 and told to remain at his house in Twenthe in the woods of eastern Holland until the end of the war. During this time he kept himself occupied by formulating strategies for the postwar operation of KLM.

When the war ended in the spring of 1945 Plesman was largely forgiven by the public for his attempts to make peace with the Germans earlier in the war. Soon afterwards he traveled to the United States to negotiate the purchase of surplus warplanes for KLM. The company wasted no time rebuilding its network, but since the Dutch East Indies were in a state of revolt Plesman’s first priority was to re-establish KLM’s route to Batavia. By the end of the year KLM was again flying to Indonesia. By 1948 services were opened to Africa, North and South America, and the Caribbean. Also during the immediate postwar period, the Dutch government expressed interest many times in gaining a controlling interest in KLM. Plesman, however, was a fiercely independent man and kept the company under private control while conceding only a portion of KLM’s ownership to the government.

Indonesia (formerly the Dutch East Indies) gained its independence from The Netherlands in 1949. The following year the Indonesian government established its own national airline called Garuda. KLM assisted Garuda from the time of its inception and continued to aid the company with technical and financial assistance until 1982. KLM later helped to establish a number of other airlines in developing nations, including Philippine Airlines, Nigeria Airways, Viasa (Venezuela), Egyptair, and Aerolineas Argentinas.

In 1950 KLM entered into an agreement with Swissair and Belgium’s Sabena airlines which led to the establishment of a spare parts pool. The BeNeSwiss agreement laid the ground for a future maintenance pool called the KSSU group which included KLM, Scandinavian Airlines, Swissair, and the privately operated French airline UTA. KLM also continued to modernize and expand during the 1950’s. It was the first European airline to fly new versions of the Lockheed Constellation and Electra. In addition, a number of destinations in western North America were added to KLM’s route structure. In 1954 the company created KLM Aerocarto N.V., an aerial survey and photography service.

Albert Plesman died on December 31,1954 at the age of 64. Praised and decorated as a hero of the Netherlands, Plesman also received decorations from Denmark, Belgium, Sweden, Czechoslovakia, Greece, Tunisia, Lebanon and Syria. The company he left behind was entering a difficult period in commercial aviation history. A sudden and unexplained decline in ridership caused financial reverses at KLM and most of the world’s other airlines. The company also faced the burden of financing a costly conversion to jet airplanes. And by this time the government had increased its ownership of the company to two-thirds by purchasing new KLM stock issues. The board of directors, however, remained under the control of the private shareholders.

In 1961 KLM reported its first year of losses. The company’s president, LA. Aler, resigned and was replaced by Ernst Hans van der Beugel. Yet the change in leadership was not enough to reverse the company’s financial difficulties. Aler enlisted McKinsey & Company, an airline consulting firm, to make recommendations for returning the company to profitability. Their study concluded that KLM should reduce its staff and number of airplanes. Aler, however, had already reduced the staff by one-seventh and refused to release any more personnel. In January of 1963 Aler resigned from KLM and later checked into a hospital suffering from exhaustion.

KLM’s board of directors then elected Horatius Albarda to the company’s presidency. Albarda initiated a reorganization of the company which involved further cutbacks in staff and air services. But Albarda’s tenure of presidency ended when he was killed in a private plane crash during 1965. Albarda was succeeded by KLM’s Deputy President Gerrit van der Wai. Van der Wai adopted Albert Plesman’s attitude toward government involvement in KLM. Before his appointment to KLM Van der Wai reached an agreement with the government that, despite its major financial holding in the company, KLM would be run as a private enterprise without interference from the government. By 1966 the Dutch government interest in KLM had been reduced to 49.5%.

In 1965 the airline created a subsidiary called KLM Helicopters to transport oil workers to and from oil drilling rigs in the North Sea. The division has since expanded its range of operations to include specialized and chartered airlift services. KLM created another subsidiary in 1966 to operate domestic passenger air services in the Netherlands. NLM Dutch Airlines connected a number of smaller Dutch cities with the nation’s international airports in Rotterdam and Amsterdam. NLM later included flights to other European cities and in 1976 the division’s name was changed to NLM CityHopper.

In an attempt to better utilize its facilities at Amsterdam’s Schiphol Airport, KLM initiated a promotion called Distrinet in conjunction with a number of Dutch shipping and transport companies. Distrinet was intended to co-ordinate these various Dutch companies in order to establish Amsterdam as the primary continental port of entry and distribution for European cargo.

KLM was a regular customer of the McDonnell Douglas Corporation. When the airline introduced jet service in 1960 it decided to employ the Douglas DC-8 rather than the Boeing Company’s 707. In 1969 the company purchased DC-9s rather than Boeing’s similarly configured three-engine 727. In 1971, however, KLM purchased the first of a number of Boeing 747 jumbo jets. McDonnell Douglas campaigned very hard to prevent KLM from purchasing more Boeing products. Nevertheless, KLM remained neutral. KLM preferred to recognize the unique qualities of each company’s product and avoid becoming the exclusive customer of any one company.

McDonnell Douglas’ response to Boeing’s production of the 747 was to manufacture the DC-10 which became available shortly after the 747. The DC-10 is smaller than the 747 and somewhat more efficient at lower passenger load factors (when a number of seats remain empty). In 1972 KLM purchased the first of several DC-10s to provide the airline with a more flexible fleet. Boeing and McDonnell Douglas, however, soon had more than just each other for competition. A number of airline companies, most of them European and including KLM, placed orders for a new airplane being developed by Airbus, the European aerospace consortium. KLM ordered ten Airbus A-310 passenger jetliners scheduled for delivery beginning in 1983.

Difficult economic conditions caused by the oil crises in 1973-74 forced KLM to seek government assistance in arranging debt refinancing. In return for the government’s money KLM issued additional shares of stock to the government. By the late 1970’s the government held a 78% majority of KLM stock. Company management, however, remained under the control of private shareholders.

Sergio Orlandini (his father was Italian and his mother Dutch) became KLM’s president in 1973. Upon taking office he was confronted with a problem common to all international carriers at that time, namely, overcapacity. KLM was flying planes with too many empty seats. The solution at other airline companies was to offer discounted fares in the belief that some income from a given seat was better than none at all. Orlandini chose another approach. His idea was to reconfigure KLM’s 747s (with its huge capacity for passengers) so that it could carry a combination of passengers and freight. A partition separated the passenger cabin from the cargo hold in the rear of the airplane. Later 747s delivered to KLM (called “combis”) were specifically designed for combinations of passengers and freight.

Presently one-sixth of KLM’s earnings are from non-airline operations which include management consulting, technical services, staff training, hotels, duty-free shops, catering, and ground handling. Under the terms of the KSSU agreement, KLM performs maintenance on 747s and overhaul of CF6 engines. The company’s diversity has enabled it to survive difficult periods in the airline passenger market.

The Dutch government’s share of KLM was reduced to 54.8% in 1986 and is expected to be reduced even further to 36.6% in 1987-88. KLM has also cooperated with British Airways and a number of American airline companies who are lobbying to relax airline regulations in Europe. This cooperation may one day lead to a European form of airline deregulation.

Principal Subsidiaries

KLM Aerocarto; NLM City-Hopper; KLM Helicopters; Golden Tulip International; Service Q. General Service Co.; KLM International Finance Co.; Weblock; Highmark International.