UPDATE 1-Dutch take stake in Air France KLM to counter French influence

The Dutch government will take a stake in Air France KLM equal to that of the French government to increase its influence in the carrier's operations, Dutch Finance Minister Wopke Hoekstra said on Tuesday. The move comes weeks after a confrontation between the Dutch government and the airline's French-dominated executive board over waning Dutch influence in the group.

Hoekstra said the state has taken a strategic stake of 12.7 percent for 680 million euros ($774 million) and aims to increase that to about 14 percent. It is a "fundamental step toward protecting Dutch interests", Hoekstra told journalists in The Hague.

"Buying this stake ensures we have a seat at the table," he added. Hoekstra said the state was not making an investment but protecting the interests of the Dutch economy and Amsterdam's Schiphol airport. Schiphol is Europe's third-largest airport and a major source of employment.

Officials at the French Economy Ministry were not immediately available to comment. "Several times in recent years the Dutch interest was not given enough weight in important decisions for the company as a whole," Hoekstra said in a letter to parliament on Tuesday.

"In our view, possible consequences for Dutch public interests are not given enough consideration in the current set-up." KLM personnel held a large protest rally in response to rumours that Air France intended to remove the Dutch chief executive of the KLM subsidiary, Pieter Elbers, and fully integrate the two companies.

Air France's new CEO Ben Smith travelled to the Netherlands for a reportedly uncomfortable meeting with Hoekstra before an Air France board meeting on Feb. 19.. Elbers' reappointment was confirmed ahead of the group's full-year earnings presentation on Feb. 20, at which Smith also announced plans for further coordination of the airlines' fleets and networks.

Air France this month reported full-year operating earnings of 266 million euros, compared with 1.07 billion euros at the KLM subsidiary. The group has trailed rivals Lufthansa and British Airways on profitability, held back by restrictive French union deals and strikes that last year wiped 335 million euros off earnings and forced out its CEO. ($1 = 0.8783 euros)

(Additional reporting by Bart Meijer and Toby Sterling in Amsterdam and Tim Hepher in Paris Writing by Anthony Deutsch Editing by David Goodman)