EURO125m cash sweetener crucial to Sabena rebirth

Date: 08/11/01

By Laurence Frost

BELGIUM announced new private backing for a possible joint venture between low-cost airline Virgin Express and a subsidiary of Sabena, as a Brussels court declared the national carrier bankrupt yesterday (7 November).

But the rescue bid faces opposition from the European Commission over the use of a €125 million government bridging loan as a sweetener, which would break EU rules on state aid.

Belgian premier Guy Verhofstadt declared that 15 banks and investment companies had agreed to contribute €200 million to the recapitalisation of Sabena's Delta Air Transport (DAT) subsidiary. The new regional carrier could begin flights within days, said minister Rik Daems. "The next step is to form an alliance with Virgin Express in a form that has still to be determined," said Verhofstadt's spokesman Alain Gerlache. "The bridging loan will be given to the new DAT but it will have to be paid back, of course."

The emergency government loan was granted when Sabena applied for protection against its creditors last month, and approved by the Commission under EU provisions for rescue aid. Loyola de Palacio, the transport commissioner, told the last meeting of the European Parliament's environment committee that such aid could not be used to finance rescue bids. "If the loan is used by DAT, DAT must conform to the rules," said de Palacio's spokesman Gilles Gantelet. "Any financial transfer from Sabena to its subsidiary would have to be examined from a state aid point of view." As the DAT plan was announced, Virgin said negotiations would resume "when the dust has settled" and hinted at increased flexibility over the terms of a possible deal.

Virgin spokesman Will Whitehorn said the company was keeping an open mind on loss-making long-haul routes that Belgium was keen to maintain. The new entity would not necessarily carry the Virgin name, but would not carry Sabena's either, he added. The last round of talks had stalled earlier this week when Virgin Express chief Richard Branson refused to accept a Belgian business plan which strayed too far from the low-cost principles of his carrier. "In the year 2001 the airline industry can't be a job creation scheme," said Whitehorn. "But we still believe a new airline can be created out of DAT and Virgin Express."

After the talks failed, the no-frills airline announced it was opening four new routes from Brussels to Zurich, Geneva, Stockholm and Göteborg - with 15 further destinations planned for coming months. But the company is not ruling out transferring some of these routes to the possible joint venture with DAT.

Thousands of Sabena staff facing almost certain redundancy took to the streets of the Belgian capital yesterday to voice their anger at the government, the European Commission and Swissair - the major shareholder whose own financial collapse precipitated Sabena's bankruptcy. "This couldn't happen in France," said ground staffer Sonja Platton. "The Commission makes comparisons between companies but it doesn't take costs into account. Some airlines don't pay landing rights - we do."

There were few signs of support for a rescue bid that would save only a fraction of the company's 12,000 jobs. "We want Sabena, we want to keep our name," said a tearful Regine Carion, 49, who has worked for the company for 24 years. "We are all Sabenians and we want to stay Sabenians." Anna Diamantopoulou, the EU's employment commissioner, described the mass redundancies as "a real social earthquake whose shock-waves will be felt across the 15 member states". Belgian bank Fortis and the holding company Groupe Bruxelles Lambert (GBL) are among DAT's new backers. Former EU commissioner and financier Etienne Davignon is working to assemble a group of private investors to support the package.

Belgium announced new private backing for a possible joint venture between low-cost airline Virgin Express and a subsidiary of Sabena, as a Brussels court declared the national carrier bankrupt on 7 November 2001.