UPDATE: Virgin Express Still Wants Certain Sabena Assets
November 9, 2001
Dow Jones Newswires
(This story was originally published Thursday)
By Emma Blake
Of DOW JONES NEWSWIRES
LONDON -- Brussels-listed low-cost airline Virgin Express Holdings PLC (VIRGY) said Thursday that it is still in talks with the Belgian government to create an airline combining its assets with the viable remaining assets of now-defunct Sabena SA (B.SAB).
But even if the plan isn't accepted by the government, Virgin Express will expand regardless, a Virgin Group spokesman said, without elaborating on what shape the new entity may take.
However, industry watchers are skeptical of the company's interest in these assets, saying such a move would need considerable investment which Virgin is unlikely to provide.
And the government has refused to comment, saying the future of Sabena's assets is now in the hands of the company's administrators.
The Virgin spokesman said the Belgian government and investors' decision to move certain assets out of Sabena and into regional arm Delta Air Transport didn't spell the end of Virgin Express's plan.
"On the contrary, the government wishes to talk to us," he said. "(The government) may have moved the Sabena assets they wanted to keep into DAT, but that is because they wanted to keep those assets out of liquidation," the spokesman said.
Virgin Express has submitted a plan for a new Belgian airline that would combine those assets with Virgin Express.
"We have a proposal to create a new airline out of DAT and Virgin Express which we think will be economically viable and a success."
But, said an airline consultant who didn't want to be named, while there is probably a viable argument for creating a regional European point-to-point carrier out of Sabena's ashes, it is unlikely Virgin Express will be the one to do so.
"It is understandable that Virgin, as a competing Belgium-based airline, would be interested either in seeing the death of a competitor or picking up the remaining assets for a song," the consultant said. "But it is difficult to see how they could do that on any scale without investing large amounts of cash and I find it hard to see them putting in a significant amount of cash."
The Belgian government said Wednesday, following Sabena's collapse into bankruptcy, that a new airline would be formed around DAT and be funded with EUR200 million from a consortium of 12 Belgian banks and companies, and Belgium's three regional investment companies. The new airline would focus on Europe and Africa.
Investors in the deal weren't able to disclose any more details on what the new airline may look like and one London analyst wondered what, if any, possible structure might work.
"There's a fundamental problem in the Belgian airline industry in that the labor costs are far too high compared with other countries, and there is virtually no local market," said the analyst, who didn't want to be named.
"There may be a market for flying diplomats from the European capital to about 10 capital cities around Europe and perhaps one flight to the U.S. and Africa a day - but that's it," he said.
As such, the only way Virgin could make such a deal viable would be to offer to take a limited number of Sabena's assets and employees for very little money, he said.
"And that is probably why the government hasn't yet signed on the dotted line."
-By Emma Blake, Dow Jones Newswires; 44-207-842-9281; emma.blake@dowjones.com
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