Sabena S.A./N.V.

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Sabena S.A./N.V.

Avenue Mounierlaan, 2
1200 Brussels
Belgium
Telephone: 32 (2) 723 31 11
Fax: 32 (2) 723 87 08
Web Site: http://www.sabena.com

State-Owned Company
Incorporated: 1923 as Société Anonyme Belge d’Exploitation de la Navigation Aérienne
Employees: 10,600
Sales: BFr 86.8 billion ($2.1 billion) (1998)
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation; 48819 Other Support Activities for Air Transportation

Sabena S.A./N.V. has become Europe’s fastest growing airline on the strength of speedy connections through Brussels, the “capital of Europe.” Its base sees a steady stream of European diplomats and NATO emissaries. Also strong in former colonies in Africa, Sabena carries nine million passengers a year. The company is 49.5 percent owned by Swissair, with the remaining shares being held by the Belgian government and other interests. Its management structure is complicated by a power-sharing arrangement between its Flemish and French-speaking factions. Flying for more than 75 years, Sabena is one of the world’s oldest airlines.

Colonial Origins

Belgian civil air transportation has its origins in SNETA, the National Society for the Study of Air Transport, founded in 1919. SNETA ferried passengers to neighboring capitals on primitive planes left over from World War I. Société Anonyme Beige d’Exploitation de la Navigation Aérienne—S.A.B.E.N.A. for short—replaced SNETA in 1923.

Sabena flew the three-engined civil transports of the day. Its first official service was to the United Kingdom via Brussels-Ostend-Lympne, and its first scheduled passenger route connected Brussels and Strasbourg in 1924. The next year, it sent pilot Edmond Thieffry on a 51 day flight (75 hours in the air) to Leopoldville (Kinshasa) in the Belgian Congo, where Sabena then began to build a local route network. In ten years, Sabena was operating scheduled flights on the Brussels-Leo-poldville route.

World War II interrupted civil aviation throughout Europe. After the war, Sabena took wing under chairman Gilbert Périer. In 1947, the Brussels-New York route, flown by new DC-4s, was added to Sabena’s long-haul international routes. Sabena also operated the ubiquitous Convair in the 1950s. In the next two decades, the carrier would bring in state-of-the-art jets such as the Caravelle and the Boeing 707 and 747.

Employment reached 10,000 in 1957. Overstaffed and undercapitalized, Sabena finally instituted a restructuring in 1968. In 1969, Sabena added a Vienna-Brussels-New York route in conjunction with Austrian Airlines.

The 1970s-80s

In spite of its new fiscal discipline, the oil crises of the 1970s and fierce transatlantic price competition from newly deregulated U.S. carriers hit Sabena hard. Chairman Carlos Van Rafelghem oversaw yet another restructuring. Workforce reduction and wage controls were combined with an infusion of new capital from the government. The company was also divided into subsidiaries. Sabena’s balance sheet improved for a few years following these moves.

In the early 1970s, there was talk of combining Sabena with KLM and Luxair to form Benelux Airlines, but these plans were scrapped. Subsequent merger talks with Scandinavian Airlines System (SAS) were also unproductive, and Sabena remained an independent airline.

In 1989, the carrier shortened its name from Sabena Belgian World Airlines to Sabena World Airlines or SWA. It sought to become identified as an airline dedicated to the European Community, and toward that end exploited its uncrowded Brussels hub, connecting underserved, secondary markets such as Bristol, Nuremberg, and Lyon.

In December 1989, KLM and British Airways (BA) announced they would each take 20 percent stakes in SWA at a cost of $55 million (£33 million) each. Sabena planned to nearly double its fleet of 35 planes within five years to meet the conditions of the pact. However, protests by British Midland and Belgian charter carrier Trans European Airways caught the ear of the European Commission and the British Monopolies and Mergers Commission. Sabena was already operating in the red, and in September 1990 management asked the Belgian government for help meeting a cash crisis. This, along with the unfavorable regulatory climate, conspired to kill the BA/KLM deal.

Crisis in the 1990s

Civil airlines worldwide were hurt by the Persian Gulf War, high fuel costs, and a global recession. At the end of 1990, Sabena’s new chairman Pierre Godfroid, who came to Sabena from his position as head of Campbell Soup Co.’s European operations, had the responsibility of restructuring the company and readying it for privatization. His plan cut 2,500 of 11,000 jobs over three years. Management techniques were refined along total quality management (TQM) lines. Sabena unveiled a new corporate identity in the early 1990s, beckoning patrons to “enjoy” the company. Employees did not enjoy the austerity measures, however, resulting in a few strikes.

The carrier’s search for a new investment partner finally brought it to Air France, with whom it signed a cooperative pact in April 1992. The Belgian holding company Finacta invested BFr 6 billion, including Air France’s capital. The Belgian government added another BFr 9 billion, raising Sabena’s total capital to 16 billion.

Although traffic rose in 1994, tough competition prevented Sabena from enjoying a profit. It lost $125.6 million on sales of $1.2 billion. Political and economic problems in Africa contributed to weaker than expected business there.

Air France withdrew its investment in 1994. Its partnership with Sabena could not stop the tide of red ink at either airline. However, in May 1995, Swissair moved to broaden its cooperation with Sabena in all areas of operations. On July 25, SAirGroup, Swissair’s parent, acquired 49.5 percent of Sabena’s shares for BFr 10.5 billion. Sabena group achieved turnover of BFr 59 million and a passenger count of five million in 1995. Cargo volumes swelled as well. However, both Sabena and Swissair suffered serious losses.

A pact between KLM and Northwest Airlines, given unprecedented antitrust immunity in 1992, sparked a series of alliances that would divvy up most North Atlantic traffic between four main airline groupings within a few years. Sabena partnered with Delta Air Lines on such routes, beginning with Brussels-Atlanta where two carriers jointly staffed an aircraft. The code-sharing was later extended to a few of Sabena’s German destinations. Other partners in Delta’s “Atlantic Excellence” program included Swissair and Austrian Airlines.

Sabena seized a couple of point-to-point opportunities from Bologna created by European deregulation. It operated charter flights through its Sobelair subsidiary while Delta Air Transport served as its regional airline. Sabena partnered with the budget carrier Virgin Express (51 percent owned by Virgin Atlantic but based in Brussels) on a Brussels-London route. It had also added code-share agreements with Tyrolean Airways and Fin-nair. A code share with TAP Air Portugal extended Sabena’s reach to Macau. The company bought a 49.5 percent stake in Air Zaire in 1996.

Godfroid, along with two other executives, resigned abruptly in March 1996 in a period of labor turmoil. He had proposed scrapping existing labor agreements following their expiration, sparking a crippling series of strikes. Paul Reut-linger, Swissair’s marketing vice-president, was immediately appointed CEO. Air Transport World reported the carrier’s payroll accounted for 40 percent of operating costs, nearly twice that of the profit leader British Airways.

Striking pilots were brought back on-line by the threat of Swissair abandoning its $207 million investment in Sabena. The pilots had objected to raising yearly flying time from 625 hours to 650. Their strike only lasted a few hours. Otherwise, SAirGroup aimed to acquire a 62.5 percent controlling interest by 2001, if it could overcome European Union (EU) ownership restrictions, as Switzerland was not an EU member.

Sabena found a needed bargain in the fall of 1996 when it joined Swissair and Austrian Airlines in a $1 billion order for nine Airbus A330 widebody jets. All three planned to expand their alliance with Delta Air Lines to unprecedented levels of cooperation. Still, Sabena realized huge financial losses in 1996 with below-average traffic growth and load factors. Restructuring charges compounded the losses. Revenues were BFr 56.8 billion ($1.5 billion). Its 60 planes carried 5.2 million passengers and 113,000 metric tons of cargo.

Company Perspectives:

Our mission is to serve airline customers safely, punctually and profitably from the heart of Europe. Our vision is to grow worldwide as a sustained profitable airline Group by exceeding cost effectively the needs of our customers, leveraging our partnerships and developing our people.

Recovery in 1997

Passenger traffic and productivity increased handsomely during the first half of 1997, the beginning of a recovery. The company thinned its long-haul fleet to reduce operating costs. By 2000, it planned to unload its Boeing 747s in favor of Airbus A330s, creating the possibility of having aircrew qualified to fly more than one type, potentially saving several million dollars a year. Commonality would also lower maintenance costs. Swissair preferred Airbus as well.

Sabena planned to add more short and medium range planes. It operated Avro and Boeing aircraft on these routes, and its charter subsidiary Sobelair flew Boeing 737 and 767 jets exclusively. In addition, Sabena Technics performed third-party overhauls on Boeing 737s, raising the possibility of massive layoffs should Airbus win the contract for shorter-range planes. Other types Sabena operated in the 1990s were the British Aerospace BAe 146s and Embraer EMB-145s of Delta Air Transport.

The maintenance, repair, and overhaul (MRO) division, Sabena Technics, competed in a crowded market. The 2,000-employee unit participated in an upgrade program for the Lockheed Martin C-130H Hercules, a ubiquitous military transport plane.

To reduce payroll costs, the company planned to base its flight personnel in Switzerland, which had lower employer taxes. In fact, the pilots would not actually have to leave Belgium, just pay taxes to Switzerland.

Sabena added Brussels-Cincinnati in cooperation with Delta Air Lines in 1997. It also entered an agreement with VLM, an independent carrier based in Antwerp. Its losses for the year were reduced, and Sabena led Europe in traffic growth. Cargo shipments were also up.

Employees were retrained to improve customer service and keep passengers from thinking Sabena an acronym for “Such a Bad Experience, Never Again.” Traffic continued to boom in 1998, rising 30 percent in the first quarter. Service to the United Kingdom reached 100 flights per day. Sabena expanded international routes aggressively, adding Beirut and Bangkok. Its Africa 2002 program aimed to bolster its network of 20 destinations there. The resulting rapid fleet build-up forced Sabena to import pilots. Another one-day pilots’ strike came as a result of Sabena banning Virgin Express pilots from recruitment.

Sabena partnered with CityBird, a new Belgian long-haul airline in March 1998, taking an 11 percent share. It also joined the Qualiflyer Group started by Swissair, Austrian Airlines, and several other European carriers. It reduced its holdings in City-Bird to less than three percent after CityBird started a Brussels-Kinshasa route in cooperation with Lignes Aériennes Congolaises. A couple of Sabena’s feeder routes, Brussels-Paris and Brussels-Luxembourg, were flown by Schreiner Airways operating as Sabena Connect.

Sabena showed a profit of BFr 1.26 billion in 1998, the year of its 75th anniversary. In early 1999, Sabena revamped its colors, returning to its traditional blue and white from the dull gray that had previously dominated its livery.

After Delta Air Lines made Air France its main transatlantic partner, Swissair and Sabena both joined a competing alliance with American Airlines. However, they also remained in Delta’s “Atlantic Excellence” group. Switzerland and the EU were working on an agreement that would allow SAir Group to take a majority ownership in Sabena without forfeiting Sabena’s status as an EU carrier.

Principal Subsidiaries

Sobelair (60%); Delta Air Transport; Air Zaire (49.5%).

Principal Competitors

British Airways pic; KLM Royal Dutch Airlines; Deutsche Lufthansa AG; Groupe Air France.

Key Dates:

1923:: Sabena founded to promote Belgian civil aviation.
1925:: Sabena begins developing African route system.
1947:: Brussels-New York service added.
1957:: Employment reaches 10,000.
1989:: Sabena begins developing its identity as airline of the European Community.
1992:: Air France invests as a strategic partner.
1995:: SAirGroup acquires 49.5 percent of Sabena’s shares after Air France drops out.
1997:: Retooled Sabena leads Europe in traffic growth.
1999:: Sabena and Swissair ally themselves with American Airlines.