UPDATE 1-Belgian plan for new Sabena faces doubts
November 08, 2001 09:20:00 AM ET
(Adds details throughout, rival airlines moving in para 7)
By Bart Crols and Tim Hepher
BRUSSELS, Nov 8 (Reuters) - The European Union bared its teeth at plans to rescue part of bankrupt Belgian airline Sabena on Thursday as doubts grew over the attempt to build a viable new private airline with the help of public cash.
The Belgian government reached an agreement overnight with trade unions on a $350 million compensation fund for half of Sabena's 12,000 workers who are certain to lose their jobs.
But the fate of the rest of Sabena's workforce looked increasingly uncertain as the EU prepared to query on competition grounds any attempts to put taxpayers' money into the new venture.
A day after Sabena became the first EU flag carrier to go bust, up to 1,000 Sabena workers staged protests at Brussels airport, blocking access to the terminal for about an hour.
EU officials stressed that whatever happens to Sabena will set a precedent as it takes a tough line on state bail-outs.
"Any public money invested is potentially state aid; we'll have to check that," European Commission spokesman Gilles Ganteletsaid, asked about the plan for a new airilne.
Belgium announced on Wednesday it had brought together 200 million euros from banks and investors to jump-start a new airline around Sabena's regional arm Delta Air Transport (DAT). The government is optimistic the airline will start flying in days.
But the money includes 45 million euros from three regional investment corporations funded by local governments, something rival carriers or European regulators could challenge.
EU competition rules prevent the bloc's 15 members from rescuing sick airlines with public money, known as state aid.
With no such lifeline, Sabena went bankrupt on Wednesday after failing to find a private buyer for the whole airine.
The EU does however allow governments to invest in firms on the same basis as any private investor -- the expectation of a making a reasonable profit later.
An acid test for deciding whether public cash for the new Sabena is a genuine investment, not a dressed-up subsidy, will be how far the deal attracts private funds too, officials said.
Four big banking groups -- KBC , Fortis , Dexia and ING Barings' BBL affiliate -- confirmed they were willing to invest in the new airline, but declined to comment on the exact amounts.
Other non-financial companies confirmed they had been approached but said they had not yet decided whether to join.
Some analysts doubted whether 155 million euros to be raised from a consortium of 12 investors would be sufficient, even if all participate. The government says it is just a start.
Questions also emerged as to whether the Commission would approve the transfer to the new airline of a government bridging loan originally given to Sabena while its fate was being decided.
Without waiting for uncertainties like these to be cleared up, rival airlines rushed to fill the void left by Sabena -- sending Lufthansa and KLM shares up sharply.
U.S. carrier Delta Air Lines (DAL) brought forward plans to reinstate its New York-Brussels service, while others added capacity to avoid missing out on a slice of Sabena's $2 billion annual revenues.
VETERANS TO THE RESCUE
As part of its bid to save Belgian pride with a new airline, the government drafted in two veteran captains of business -- former EU Industry Commissioner Etienne Davignon and Fortis co-chairman Maurice Lippens -- to woo potential investors.
Davignon, who had also been enlisted by Belgium to find foreign investors for its former colony, the Democratic Republic of Congo, said bankruptcy was the best way to preserve Sabena in some form.
"If we had to create this new Sabena out of the existing Sabena, there would be no business plan," he told RTBF radio.
He said the consortium would look for an airline partner to run the new company, and its first preference would be British entrepreneur Richard Branson's Virgin Express .
In Washington, Branson told reporters on Wednesday he did not rule out of the possibility of seeking a stake in DAT.
"It is an option. We'll see what happens," he said, adding that if the government had raised enough private capital to create a new airline, "I suspect...Virgin Express and DAT will have some talks about whether we will compete or work together".
Virgin Express has seen its turnover double this week.
Sabena only posted a profit once since 1958, and owes banks some $2.1 billion. It and collapsed co-shareholder Swissair , which holds a 49.5 percent stake, had been in trouble well before the September 11 hijacker attacks dealt a body blow to the global airlines industry. (Additional reporting by David Lawsky, Gilles Castonguay, Paul Taylor)
© 2001 Reuters
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