French carrier Air France unveiled plans to cut more than 5,000 jobs by the end of next year as part of an effort to slash costs and debt to return to growth in the face of tough market conditions in Europe and political pressure at home.
The job cuts come as the world's airline industry grapples with the need to consolidate because of limited growth prospects, rising costs and the effects of the euro zone debt crisis.
Air France, under the watchful eye of France's new Socialist government, pledged to try to avoid forced layoffs by encouraging early retirement, voluntary departures, part-time working and work-sharing.
But the carrier warned forced redundancies would be "unavoidable" if unions refused to support management's plans.
"Air France is facing a fundamental choice about its future," Air France Chief Executive Alexandre de Juniac said in a statement on Thursday, when he was meeting with the airline's works council. "If we all make the necessary equitably distributed efforts, there will be no forced departures."
Air France-KLM <AIRF.PA> and Europe's other leading legacy carriers have been confronting losses in their short-haul operations as Europe's economy has taken a battering, leading to a wave of painful contract negotiations.
The Franco-Dutch group unveiled a three-year plan in January, fleshed out last month, to reduce debt and operating costs by 2 billion euros ($2.54 billion) in an effort to return to break-even in 2014.
It has said its labor contracts stand in the way of heading off growing competition from low-cost carriers including Britain's easyJet <EZJ.L> and a historic fuel bill which is set to rise by 1 billion euros in 2012.
Global airline leaders meeting in Beijing earlier this month stuck to their overall profit forecast for 2012, but the industry is braced for Europe's debt crisis to worsen and wipe out the benefit of recently cheaper oil.
The International Air Transport Association (IATA) only expects growth in North and South America this year, and there are concerns that cargo traffic might take a hit from the European crisis spilling over.
German rival Lufthansa <LHAG.DE> announced last month that it was slashing 3,500 administrative jobs around the world as it tries to offset soaring fuel costs and fierce competition in Europe to return to profitability.
Shares in Air France-KLM, previously down 13 percent this year after plunging 71 percent last year, were 7.3 percent higher at 3.69 euros by 0714 EDT, the top gainers on the broad French SBF120 index <.SBF120>.
The Air France job cuts also come as France's new President Francois Hollande has pledged to clamp down on layoffs with plans to ramp up the cost for companies of shedding staff. At 10 percent, the French jobless rate has hit the highest level this century.
The government and unions are bracing for a wave of layoffs now that presidential and legislative elections are over, fearing companies had put off job cuts until after the election period.
Labour Minister Michel Sapin, who has said the government's aim was to "make layoffs so expensive for companies that it's not worth it", told Europe 1 radio on Thursday that he supported negotiations between management and unions to save the airline.
"Management is saying that if nothing is done, this great company risks collapsing," Sapin said. "It's not 'if nothing is done the dividends will decline', it's not about profitability."
Sapin said the government was encouraging dialogue between management and unions aimed at returning the company to financial stability without mass layoffs.