Lufthansa benefits from Sabena failure

AIR CARRIERS: Top airlines in Europe are predicted to gain from the business collapse of the Belgian flag carrier

BLOOMBERG , FRANKFURT

Fri, Nov 09, 2001 - Page 21

Deutsche Lufthansa AG and British Airways Plc shares surged after Sabena SA went bankrupt as investors bet Europe's two largest carriers would benefit from the collapse of the Belgian national airline.

"This is a very positive step for the industry and makes it more like any normal industry where companies are allowed to fail," said Gerald Khoo, an analyst at BNP Paribas. "The next step would be where airlines are allowed to merge cross-border."

As the smaller national carriers fail or reduce their networks, the European industry will be increasingly dominated by its three largest carriers, British Airways, Lufthansa and Air France SA, which will take over long-haul and trans-Atlantic routes, analysts have said.

Lufthansa shares rose 1.26 euros, or 11 percent, while those of British Airways jumped PD0.125, or 8.1 percent, to 166.5 Air France rose 0.30 euros, or 2.4 percent, to 13 euros. KLM Royal Dutch Airlines also rose US$0.75, or 8 percent, to 10.03 euros, though analysts have said it is a likely takeover target.

Sabena became the first major European airline to go out of business as the attacks on the US exacerbated a decline in air travel from the slowing economy. Lufthansa, Europe's No. 2 airline, said it's "drastically" increasing slights to Brussels as a result.

Swissair Group, which owns 49.5 percent of Sabena, was bailed out by the Swiss government and businesses, and flights will be taken over by Crossair AG. Aer Lingus Plc, the Irish national carrier, has warned it may run out of money early next year. KLM Royal Dutch Airlines, Alitalia SpA and others are facing losses, cutting jobs and grounding planes.

European carriers are set to lose a combined 2.5 billion euros (US$2.3 billion) this year as demand on trans-Atlantic routes has fallen more than a third since the Sept. 11 hijackings in the US, the Association of European Airlines has estimated.

Other beneficiaries might be low-fare airlines, such as Ryanair Holdings Plc, which reported a 43 percent increase in fiscal second-quarter net income Monday, and EasyJet Plc, which on Wednesday reported it carried 33 percent more passengers last month as its route network expanded.

"What Europe needs is the total consolidation and reorganization of its airlines," EasyJet said in an e-mailed statement. ``That each country expects to boast a national airline, regardless of how much money it loses, is bad for competition and ultimately for consumers."

Lawyers representing Sabena, which has made money twice in its 78-year history, made the bankruptcy filing at Brussels Commercial Court, said Wilfried Remans, a Sabena spokesman.

Sabena ran out of money after it failed to find a partner to replace Swissair.

"It's good to see them go, as they've been spoiling the market for more efficient airlines for 40 years," said Mike Powell, an analyst at Dresdner Kleinwort Wasserstein in London.

"Sabena has always struggled to have an efficient cost base and that's hopefully something a new Sabena can get around, particularly if there's private capital involved." Sabena's final flight, from Cotonou, Benin, landed at 11:35am in Brussels. While Zaventem Airport was packed with Sabena workers, there were no disruptions, said Jan Van der Cruysse, a spokesman for Brussels International Airport Co, which operates the airport.

"This is a very emotional moment for most of them, but operations at the airport are not disrupted today," he said in an interview. "The situation is quite serene and calm."

Belgian companies and regional governments said today they will put up 200 million euros to create a European commuter airline to take the place of Sabena.

Twelve investors including Fortis, Belgium's biggest financial-services company, and Dexia SA, the largest municipal lender, will provide 155 million euros. Belgium's three regional governments will contribute the rest.

Public Enterprise Minister Rik Daems called the project "a full-fledged private initiative."

European regulators, who approved emergency aid for Sabena, could kill the new airline if they rule it is too reliant on government money.

The new airline will follow the model used last month when Swissair was bailed out by the Swiss government and businesses and Crossair took over two-thirds of its flights. The core will be Delta Air Transport SA, Sabena's profitable short-haul subsidiary, which along with other units was not affected by the bankruptcy declaration.

Sabena's takeoff and landing slots have already been transferred to DAT, which operated 37 percent of Sabena's European flights and has a fleet of 32 aircraft, according to court papers.

The Belgian carrier lost 325 million euros in 2000 on revenue of 2.4 billion euros. The carrier, which owns eight of the 80 planes in its fleet, has about 2.5 billion euros of debt.

Swissair triggered Sabena's downfall last month by skipping a promised contribution of 132 million euros, the first installment of a 430 million-euro recovery package that was to be co-financed by the Belgian government. The Zurich-based carrier filed for protection from creditors a month ago after racking up more than US$10 billion in debts.