SABENA saved again

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The two largest shareholders of the troubled Belgian national airline, SABENA - the Belgian government and the Swiss company Swissair - reached a new agreement on 18 July 2001. The deal provides for a capital injection of EUR 430 million spread over two years. Furthermore, Swissair no longer considers itself bound by its commitment to become a majority shareholder in SABENA. The trade unions involved fear that an announced restructuring plan, whose details are not yet known, will lead to mass redundancies.

In February 2001, the Belgian national airline, SABENA (Société Anonyme Belge d'Exploitation de la Navigation Aérienne) made the industrial relations news because of the very precarious financial situation it once again found itself in (BE0102340F). The shareholders - principally the Belgian state and the Swiss-based airline Swissair- decided at that time to make a capital injection of BEF 10 billion. A 'Blue Sky' plan was also drawn up, the latest in series of restructuring plans that have required considerable sacrifices from staff.

The SABENA situation then became quiet again. In April 2001, however, when announcing the annual results, the new chair of the Swissair board of directors, Mario Corti, announced a loss for the group of around BEF 75 billion in 2000. All components of Swissair (the name SAirGroup was recently dropped) turned out to be loss-making. This applied to Swissair itself, to its French companies AOM, Air Liberté and Air Littoral (FR0105158F) and to the German subsidiary LTU. SABENA made a loss of around BEF 13 billion. The capital injection of BEF 10 billion early in 2001 now seemed to be insufficient to cover the losses for 2000. Fresh money thus urgently had to be put on the table. The SABENA chief executive, Christophe Müller, announced that a new restructuring plan was in the making.

At the same time, Mr Corti said that there was still no clear opinion regarding Swissair's continued relationship with SABENA. He added that the Blue Sky recovery plan seemed to be an inadequate basis for continuing the alliance. Some weeks later, the news followed that Swissair did not intend raising its holding in SABENA to 85%, as stipulated in January 2001 in an agreement with the Belgian government. According to commentators, it seems to be gradually becoming clear to all parties that Swissair would rather be rid of the highly loss-making SABENA.

Legal action averted

Swissair then made a number of proposals whereby, in exchange for a financial concession, it would renounce its contractual obligation to increase its holding in SABENA to 85%. The proposals were not taken seriously by the Belgian government, SABENA or the trade unions represented at the company. Both the Belgian government and SABENA planned to take legal action against Swissair for breaching agreements it had previously made. The damages claimed were EUR 529 million and EUR 500 million respectively.

A long-term legal battle did not seem to be a particularly attractive scenario for the Belgian government or for Swissair. Behind the scenes, at a night-time meeting at the Brussels Astoria Hotel on 18 July 2001, the Liberal Prime Minister, Guy Verhofstadt, and Mr Corti finally reached an agreement. There would be a new capital injection and Swissair would no longer need to become a majority shareholder.

Content of the agreement

The main points of the July 2001 agreement are as follows.

• The two main shareholders will together inject around BEF 17 billion, or EUR 430 million, into SABENA. The new capital injection will be spread over two years and will be made in four instalments. Swissair will account for 60% and the Belgian government for 40% of the new capital.

• The new agreement cancels the earlier agreement signed on 25 January 2001 in which Swissair undertook to become the majority shareholder in SABENA by raising its holding to 85% over time. The Swissair holding thus remains at 49.5%.

• The Belgian government and SABENA will immediately cease all legal action against Swissair.

• Swissair will take over nine Airbuses that were to be delivered to SABENA in 2002.

The business plan

When the catastrophic annual results became known in early April, Mr Müller, the SABENA chief executive, announced that a new restructuring plan was being drafted, which should yield EUR 410 million. The plan also provides for the sale of assets. In particular, it involves the sale of profit-making subsidiaries such as hotels, catering, SABENA-Technics (the well known maintenance operation) and air-freight operations. Mr Müller's business plan aims to make the company profitable again by 2005.

The plan has since been presented to the SABENA board of directors, but because of the new agreement between the two shareholders it now has to be revised. The precise content of the plan is not known at the time of writing (August 2001). It is, however, clear that Mr Müller has yet another change of course in store for SABENA - smaller aircraft with a higher seat occupancy and more expensive seats that mainly fly to European destinations. Apparently, the plan also provides for a further reduction of personnel of 1,500 to 2,000 units.

Reactions

The trade unions representing the other SABENA staff and the pilots organisation, the Belgian Cockpit Association (BeCA) have not commented much on the new agreement between the Belgian government and Swissair. However, the way in which Swissair has come out of this affair has drawn a lot of criticism. Jan Coolbrandt, the national secretary of the Public Services Christian Union (Centrale Chrétienne des Services Publics/Christelijke Centrale van de Openbare Diensten, CCSP/CCOD) affiliated to the Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV), believes that attempts are being made to 'sell' the new accord as a 'good' agreement, mainly by the Liberal minister of state enterprises in the coalition government, Rik Daems. However, Mr Coolbrandt believes that the deal comes down to no more than a limited financial input from Swissair to compensate for the non-observance of earlier commitments.

The possible sale of profit-making divisions has also been strongly criticised by the unions. This 'clearance sale' would make SABENA a company that is withdrawing into its core activity - ie air travel. The unions state that this 'core business' is very sensitive to the economic climate, while it is the very profit-making subsidiaries which are to be sold off that can provide a buffer in times of economic downturn.

Moreover, the unions want the past efforts and sacrifices of staff, for example contained in the Blue Sky plan, ultimately to be respected and appreciated. However, there are more staff cuts foreseen in SABENA's latest recovery plan. These cuts will be rejected, says Michel Boets of the Belgian Union of White-Collar Staff, Technicians and Managers (Syndicat des Employés, Techniciens et Cadres de Belgique/Bond Bedienden Technici en Kaders, SETCa/BBTK) affiliated to the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV).

Commentary

The Belgian national airline has been saved again. Even the current 'purple-green' coalition government with the liberal Prime Minister Guy Verhofstadt at its head has been unable to push through a successful privatisation operation. The latest merger adventure for SABENA is again turning out to be a damp squib. This conflict once again indicates that the Belgian government is totally lacking any long-term vision regarding SABENA.

The new agreement provides a short breathing space and for the time being solves the problems that arose between the two shareholders and which threatened to culminate in legal action. The continued existence of SABENA in the long term does not seem to be guaranteed at all. The ball is now in the court of chief executive Christophe Müller, who must make the company profitable again by 2005. (Jürgen Oste and Jacques Vilrokx, TESA-VUB).