Sabena – What Went Wrong

There have been few airline collapses as big as Sabena, Belgium’s national carrier. The airline went bankrupt in 2001. So why did it fail, and what could they have done differently? Let us explore.

Sabena Boeing 737-300 before they went out of business. Photo: Owleye1965 via Wikipedia

Who is Sabena?

The name Sabena is a long acronym. It stands for (deep breath) “Societé Anonyme Belge d’Exploitation de la Navigation Aérienne,” which in English roughly translates to  “Belgian Corporation for Air Navigation Services.” It was the national carrier for Belgium and its African colonies from 1923 up to 2001.

At its collapse, the airline had a diverse fleet of 52 aircraft and 14 aircraft yet to be delivered. With these aircraft, Sabena operated a pretty impressive network across Europe, deep into the heart of Africa and even over to Asia and the Americas.

In the 1990s, with the open skies agreement in Europe, the Belgian government looked for a partner to join forces with them in managing the airline. The airline was starting to struggle against a flurry of competition and had its lifeline of government funding cut due to new EU laws preventing unfair competition.

The airline had plenty of suitors and Scandinavian airline SAS was one of these. However, in 1987 SAS’ purchase was blocked by the Belgian government. British Airways and KLM bought shares in 1989 but sold them back within a few months. The same happened with Air France in 1993, who refunded shares after a significant purchase earlier in the year.

Finally, in 1995, Swissair bought into the airline and took control of 49% of the company. Despite owning less than 50% of the airline, Swissair took operational control (which may or may not have been a mistake). The new management made changes such as ordering 34 Airbus A319s and leasing two McDonnell-Douglas MD-11s for long haul routes to North and South America.

The carrier also had a Boeing 747 at one point. Photo: clipperarctic via Wikipedia

Why did they go bankrupt?

Following the events of 9/11, transatlantic trade suffered. Sabena found itself losing business with its rented aircraft and turned to Swissair for further capital. The owner-airline agreed to invest an additional €258 million; however, it never actually showed up with the money.

Swissair itself ended up filing for bankruptcy protection a month before this request was due to be filled. Sabena would then collapse a month later on the 7th of November 2001.

After this event, a committee formed by the Belgian government investigated why the airline went bankrupt. They found:

  • Swissair failed to come through with the funding that it promised. Much of the criticism lies at the feet of Mario Corti, the CEO of Swissair at the time.
  • The order for 34 Airbus aircraft was a huge financial burden on the airline.
  • The lack of action from Belgium in bailing out the airline, nor taking enough ‘effort’ to save it.
  • It was also reported that some members of the Sabena board were paid large sums of money via a Sabena affiliate in Bermuda. This was described as being ‘hush’ money as not to contest Swissair’s manipulation of the airline.

In the end, the fleet was snapped up for a bargain by a new airline, Brussel Airlines. Ironically, today this carrier may also be nationalized.

Brussels Airlines still uses many of the aircraft ordered when it was Sabera. Photo: Brussels Airlines

How could they have been saved?

In hindsight, Sabena should have been bailed out or given funding in exchange for equity. Much like the situation facing Virgin Australia today, with the liquidation or financial hardship of the owner, airline Swissair should have forced Beligum to nationalize the carrier. In return for wiping away debt, the shares should have returned to the market place. This may not have kept the airline in the governments’ hands, but it would have allowed the airline to survive.

Additionally, the order for 34 airbus aircraft should have been scrapped. If the airline went bankrupt, Airbus would lose the order anyway. Thus, getting rid of it sooner would have made it more attractive for investment.

For another ‘what went wrong’ article you can read about the fall of Australia’s Ansett.

What do you think? Are there any other ideas for how this airline could have been saved? Let us know in the comments.