September 27, 2018 / 8:43 AM / 19 days ago

UPDATE 2-Minister to Air France-KLM boss: Fix airline before talk of stake sale

* Shares rise but still down nearly 40 pct in 2018

* Le Maire: no plans for now to sell 14 pct stake (Adds more detail, background)

By Richard Lough and Sudip Kar-Gupta

PARIS, Sept 27 (Reuters) - France has no plans for now to sell its 14 percent stake in Air France-KLM, Finance Minister Bruno Le Maire said on Thursday, pressing the group's new chief executive to focus on increasing competitiveness.

Le Maire was reacting to a warning from the group's new Canadian boss, Benjamin Smith, to Air France's labour unions that the government was prepared to offload its shares and they should not rely on the state to bail them out.

Smith, who took over the group last week, faces the unenviable task of having to overcome union resistance to reduce the French unit's swollen cost base while keeping increasingly frustrated Dutch staff on side.

A wave of strikes at Air France this spring cost the group some 350 million euros ($410 million) and led to the ouster of Smith's predecessor.

"Today the priority is to turn around Air France," Le Maire told franceinfo. "Selling off the state's stake in Air France is not part of Benjamin Smith's action plan. It is not an option on the table today."

Shares in Air France KLM rose 1.6 percent, although the stock remains down by nearly 40 percent so far in 2018.

In an interview published on Thursday, Smith told the Financial Times that the French government should not and would not bail out Air France to shield it from competition, even if there were some in the company that believed the state's holding offered them protection.

Le Maire himself warned Air France staff in May that the government would not come to the airline's rescue.

The French state is the largest shareholder in Air France-KLM. What President Emmanuel Macron does with the stake will be a test of the former investment banker's resolve to lighten the state's touch on the economy.

Le Maire said it made no sense for the state to sell down its stake in Air France while the airline is attempting to make tough reforms and at a time its share price is suffering.

"The state would be a poor manager (of its holdings) if it started selling its shares in a company that is not in good shape," he said.

Air France-KLM's shares have been hit this year, mainly due to the strikes waged by French unions seeking improved pay and working conditions.

Delta Airlines and China Eastern Airlines each hold an 8.8 percent stake in the group.

$1 = 0.8543 euros Reporting by Sudip Kar-Gupta and Richard Lough, Editing by Emelia Sithole-Matarise and Mark Potter

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