SABENA's survival under threat

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The Belgian national airline, SABENA, is once again struggling with serious financial problems. The situation became so serious in December 2000 that its major shareholders, the Belgian state and the Swiss SAirGroup, were legally compelled to call an extraordinary general meeting. At this meeting in February 2001, the future existence of the company was debated, with 11,000 jobs at stake.

The Belgian national airline, SABENA (Société Anonyme Belge d'Exploitation de la Navigation Aérienne), has continually had financial problems in the past. There have been very few years since the Second World War in which the company has made a profit. Since the 1980s in particular, SABENA has gained an image among Belgian taxpayers as a bottomless pit that soaks up billions of BEF of public money. With the liberalisation of air transport in Europe, competition has increased and thus the pressure on SABENA. In order to survive, SABENA has had to work urgently on increasing its scale, like all other airline companies. Failed attempts at alliances with KLM, British Airways, and Air France followed one another up until 1995 when the Swiss-based SAirGroup, the parent holding company of Swissair, came to the aid of the desperate SABENA and became a major shareholder. A Swiss chief executive, Paul Reutlinger, took over the management of the company.

The objectives of the new management were to: follow an expansion policy and further develop Brussels as a hub; renew the fleet, coupled to harmonisation with the Swissair fleet; and improve industrial relations. The result was not long in coming: the number of passengers doubled in four years and fleet modernisation became a reality. However, after making a profit in 1998, SABENA then registered a loss of around BEF 8 billion in 2000, and for 2001 a loss of around BEF 15 billion is expected. Mr Reutlinger left earlier than planned to restructure the French acquisitions of SAirGroup and to integrate them into the Qualiflyer Group airline alliance. Christoph Muller has become the new chief executive of SABENA. He is counting on the company's "Blue Sky" financial restructuring plan (which had already been started) leading to savings of around BEF 14 billion in 2001.

Blue Sky and the SAirGroup strategy

In view of the continuing precarious financial situation of SABENA, a great deal of effort has been asked of ground staff and air crew in the past. Restructurings have followed one after the other, coupled with pay cuts and greater flexibility and productivity. The Blue Sky plan, which management presented to staff for the first time in September 2000, is no exception to this.

In December 2000, it became apparent just how perilous the financial situation of SABENA had become, and the situation started to accelerate. The board of directors noted on 11 December that the net assets had fallen to less than one quarter of the capital. Under Belgian company law, such a situation requires the shareholders to rule on the continuation of the company operations at an extraordinary general meeting within two months. This meeting was planned for 8 February 2001.

By this date, it was expected that management and the unions would have reached an agreement concerning the actual implementation of the restructuring contained in the Blue Sky recovery plan. After difficult talks between the majority shareholders (Belgian state 50.5%, SAirGroup 49.5%, with an undertaking by the latter to increase its share to 85% by the end of 2001), an agreement was reached to make a last capital injection of BEF 10 billion: BEF 4 billion contributed by the Belgian state and BEF 6 billion by the SAirGroup. The condition imposed was that by 8 February the trade unions and management would have approved an agreement on the measures to make savings.

The total recovery plan, which must yield BEF 30 billion, consists of two sections - a "management measures" section and "personnel measures" section:

• the management measures of BEF 12.2 billion consist of closing unprofitable lines, selling buildings and equipment, further transfers to subsidiaries, and renegotiating existing contracts with third parties (eg contracts with BIAC, which operates Zaventem airport, Virgin Express, which operates some flights for SABENA, and City Bird, from which SABENA rents aircraft); and

• the personnel measures of around BEF 2.2 billion mainly consist of increasing productivity and flexibility. At the same time, staff levels will be reduced by around 700 from the current 11,000, though without "uncushioned" redundancies.

Matters became uncertain again due to a change of direction by the SairGroup, brought about by the departure of chief executive Philippe Bruggisser at the end of January. Under his management, Swissair had attempted to build up its own network, the Qualiflyer Group, with Swissair as the pivotal player. In order to achieve this, the group had taken many shareholdings in a number of smaller (loss-making) European companies, such as the French AOM, the German LTU, the Italian Volare, and the Belgian SABENA. The strategy now seems mistaken, mainly because Swissair - as the pivot - also seems to be making losses. As a result of this, Mr Bruggisser had to stand down. Under pressure from shareholders, his successor, Erich Honegger, announced a more modest strategy, aimed directly at products, based mainly on concentrating on the group's profit-making operations of the group, such as catering, maintenance and cargo.

It was not ruled out that "Qualiflyer" would disappear in the favour of collaboration with One World, the alliance including American Airlines and British Airways. With this change of direction in mind, in which the existing shareholdings were being critically studied, the date of 8 February quickly took on dramatic proportions and the unions were aware of the potentially catastrophic nature of the situation. Ultimatums from management and the pilots' association, the Belgian Cockpit Association (BeCA) in particular led to a crisis situation. The other unions involved - the General Confederation of Public Services (Centrale Générale des Services Publics/Algemene Centrale der Openbare Diensten, CGSP/ACOD) and the Metalworkers' Central (Centrale des Métallurgistes/Centrale der Metaalbewerkers, CMB), affiliated to the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV), and the Federation of Liberal Trade Unions of Belgium (Centrale Générale des Syndicaux Libéraux de Belgique/ Algemene Centrale der Liberale Vakbonden van België CGSLB/ ACLVB)- took a rather more moderate approach and sought to save jobs at all costs.

Extraordinary general meeting

The pronounced militant position of the pilots' association, which culminated in a wildcat strike on 7 February, substantially complicated the negotiations between management and personnel. Unofficially, it seemed to the other unions that the pilots were taking a narrow occupational view and showing little solidarity with ground staff. Officially, the union ranks were closed, however, and there was no open criticism of the action of the pilots. In so doing, the unions were attempting to keep the unity of personnel as an important weapon in the negotiations. Nevertheless, there was indeed resentment over the attitude of the pilots. Once again, the other unions feared that the ground and cabin staff would have to foot the bill.

In the meantime, in early February the results of the audit requested from an American consultant by the unions and pilots became known. This showed that management, the SAirGroup and the Belgian state had made manifest management mistakes. Although no definitive and firm answer could be given on any financial transfers from SABENA to Swissair, the pilots' association and other unions seized on the report to place responsibility for the perilous situation outside their own camp. Ultimately the audit weighed little in the negotiations, due to the hard line adopted by the SairGroup.

The negotiations between unions and management, conducted under considerable time pressure, did not lead to a complete general agreement. They did produce some partial agreements involving around BEF 1 billion of savings in personnel costs. Despite the absence of a general agreement, the extraordinary general meeting on 8 February noted that the negotiations on the requested savings in personnel costs were already well advanced, the relationship with the unions was positive, and that the talks with the pilots' association were still progressing despite the wildcat strike. In this context, the chair of the board of directors informed SABENA staff, after the end of the general meeting, that operations would be continued and that the shareholders had allowed two extra weeks for a general personnel agreement to be reached, through which the Blue Sky restructuring plan would have to be implemented.

Commentary

Questions have to be raised concerning the attitude of SAirGroup, not only during the negotiations on Blue Sky, but also with regard to the general group strategy towards SABENA. SAirGroup has arguably never produced a clear vision of how the relationship with SABENA could develop in the longer term. This greatly increased nervousness among staff in early 2001.

SABENA is also not the only company to have been left guessing. Austrian Airlines left the Qualiflyer group some time ago, citing this lack of clarity, the alleged attempt by the SAirGroup secretly to buy Austrian Airlines shares held by All Nippon, and finally the fear that it would be absorbed by Swissair.

Furthermore, questions can also be raised about the role of the trade unions. The resigned attitude of the unions in this crisis has been notable. At a national union level, things were remarkably quiet. The unions at company level had to face the fire themselves, without the support of the national unions. The unions therefore turned to the Belgian state, which as a large shareholder ended up playing a passive role, and through impotence or disinterest left the initiative entirely to the SAirGroup.

In the meantime, the concrete results of the negotiations, which are again well underway at the time of writing (mid-February 2001), still have to be awaited. If SABENA wants to survive, the agreement between the unions and management must cover the BEF 2.2 billion of savings that were set by the shareholders as an absolute non-negotiable condition. Otherwise SABENA will cease to exist on 23 February 2001. To be continued. (Jürgen Oste and Jacques Vilrokx, TESA-VUB)