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Swiss and Sabena to be reunited at last?

5-Sep-2008

When Swissair bought Sabena, it was one of the first “successful” cross border acquisitions in Europe. That is, until they both went belly-up seven years ago. If, as looks likely now, Lufthansa buys into Brussels Airlines (subsequently formed out of Sabena’s national (regional) replacement and a merger with Virgin Express), the two national airlines will be reunited – or at least will fall under the same ownership.

Lufthansa is planning to acquire a 45% shareholding in SN Airholding in a friendly takeover, with a view to a full purchase, subject to performance, after a further two years. According to reports, Lufthansa is the preferred buyer, but British Airways and China’s Hainan Airlines are also in the running. The sum of EUR65 million is being talked about, but some shareholders of the Belgian carrier are reportedly hoping for a valuation of EUR200 million for the airline.

This would be a pretty generous valuation – and, as a hopeful target, is probably being mooted in order to drum up some competitive interest. Over its short life in its current, merged form, Brussels has been aggressive, both entrenching an attractive African route network and establishing valuable codeshares like those with India’s Jet Airways (giving good access into the Indian market and beyond, as well as helping Jet hub into the US and other routes) and Ethiopian Airways.

Now also with China service, Brussels has been selling itself as an ideal connection for the Chinese resources companies looking for convenient access into the mineral-rich west African region, using Sabena’s old Belgian colonial connections.

As well as impudently appearing under arch-rival Air France’s nose in Brussels, an interest in the airline would enhance Lufthansa’s feed to and from Africa, as well as progressively colouring the acquisition map. Presumably too, if Swissair’s advisers believed that there was complementarity between the original Swiss and Belgian route networks, there is still some logic in that reasoning.

Lufthansa’s bankers (and its investors) must be wondering just how many airlines will be flying under the German team this time next year. Austrian looks to be a likely acquisition, bmi is still hanging and available and it seems as if the appetite still remains for further expansion.

Enthusiasm for rapid cross border expansion brought down a once-glorious Swissair and there may be no more than a coincidence that the two are effectively being joined again. But it is always useful to learn the lessons of history. Excessive exuberance at a time when Europe’s market is slowing rapidly might seem a great strategic idea right now, but a few months can make a lot of difference.


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