Crisis at KLM

Eighteen months ago, when he moved in as president of KLM Royal Dutch Airlines, diminutive (5 ft. 3 in.) Ernst Hans van der Beugel, 44, looked like a bright hope. A brilliant ex-civil servant who had held the top career post in the Dutch Foreign Office, he appeared to have both the drive and diplomacy to steer the world's fourth-largest international airline deftly through the financial perils of the jet age. Last week, with an abruptness that stunned the aviation industry, Van der Beugel (pronounced van dare Bur-gel) resigned his job and checked into a hospital in The Hague, suffering from what was officially described as "exhaustion."

The fundamental causes of Van der Beugel's departure had as much to do with KLM's health as with his own. Caught in the familiar jet-age squeeze between expensive planes and too few passengers. KLM lost $21 million in 1961 and another $14 million in 1962's first nine months. Such financial turbulence made everyone fasten seat belts in KLM's executive suites. One group of entrenched, old-line KLM executives argued that despite the economic headwinds, the line should continue to expand and even resume its service to Indonesia. A more moderate faction, with which Van der Beugel apparently sympathized, favored cutting back. As KLM's situation worsened. Van der Beugel warned the Dutch government, which holds 71% of the line's stock, that KLM must either cut its operations in half or be guaranteed a substantial subsidy.

As more and more knotty problems piled up on his desk. Van der Beugel in desperation called for advice from McKinsey & Co.. a Manhattan-based management consulting firm. The McKinsey report touched off a new storm. It blistered KLM's management for lack of planning and decried the top-heavy executive structure which included four executive vice-presidents and 22 vice-presidents. The report recommended a drastic streamlining of the upper executive echelons and the firing of 2,000 of KLM's 16,000-man work force.

The harried Van der Beugel. who had already cut his payroll by 2,000 men. was not up to any more slashing and one cold morning early last week he submitted his resignation to KLM's prestigious board of directors. As a stopgap measure, flinty KLM Board Chairman Franciscus den Hollander, former boss of the Dutch railroads, took over. In the first 24 hours of Den Hollander's regime, three longtime executive vice-presidents resigned. The KLM board is expected to go outside the company to find a new president, but with the example of able Ernst van der Beugel fresh in everyone's mind, the search might prove hard.

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