Sabena now seeks protection after failure of Swissair

Sabena, the struggling Belgian carrier, yesterday filed for protection from creditors in the wake of the collapse of its part-owner Swissair, as the Belgian government gave itself a month to stop the flagship going bankrupt.

The government which owns 50.5 per cent of Sabena said it was granting a €125 million ($114 million ) loan for a month to allow the airline to continue operations and hunt for potential private investors. But it admitted it was a "very difficult exercise".

Seperately, Switzerland yesterday stepped in to rescue Swissair, its grounded flag carrier, with an emergency injection of SFr450 milion (€303 million) in public funds aimed at getting it back into the air from today.

The move followed frantic talks between government officials and the airline's main banks, UBS and Credit Suisse, and came against the backdrop of unprecedented public outrage at the banks, which are being blamed for the airline's collapse this week.

The European Commission indicated that it could approve the Sabena loan under special rules for the rescue and restructuring of companies in difficulties - a move that might have consequences for other troubled European carriers, including Aer Lingus.

"We want to create a new Sabena," said Mr Rik Daems, Belgium's public enterprises minister. "We want to maintain our operations so we don't lose valuable assets like our slots for flights to European destinations." Sabena, which has debts of €2.2 billion and has only twice recorded an annual profit, had yesterday been due to receive about €130 million from Swissair and €90 million from the Belgian government as part of a recapitalisation scheme. But neither payment was made, because of the collapse of the Swiss group, which owns 49.5 per cent of Sabena, and because the Belgian government concluded that a unilateral payment would fall foul of European rules.

Mr Daems also conceded that it was not certain that the Brussels commercial court would grant Sabena debt protection - a process similar to Chapter 11 in the US.

The only permissible forms of rescue aid for airlines are loan guarantees or loans at commercial rates. They can last up to six months, after which the country concerned must submit plans to either liquidate or restructure the company.

The Commission added that it did not consider that the situation of Sabena, or that of Swissair, to be directly linked to the problems experienced by the airline sector after the terrorist attacks on the US.

Mr Loyola de Palacio, transport commissioner, and Mr Mario Monti, competition commissioner, are due to present a paper to the Commission on October 10 on the economic effects of the attacks on the airline industry. Early drafts maintain that EU member states should only be allowed to provide direct financial assistance to airlines to compensate for the direct effects of the attacks, notably the shutdown of US airspace on September 12-14.

The Commission's position on acceptable government assistance for airlines will have particular significance for other state-controlled European carriers, such as Alitalia and Olympic Airways.

UBS and Credit Suisse on Monday offered a SFr1.4 billion emergency bailout plan for most of Swissair's flight operations, but money from the package failed to reach Swissair's coffers on Tuesday, in time for it to stay in the air. Thousands of passengers were stranded at airports.

Mr Kaspar Villiger, finance minister, said after an emergency government meeting that the government money would ensure the survival of Swissair until October 28. However, Swissair is still expected to file for bankruptcy after that. Swissair yesterday failed to pay Sabena about Sfranc 130 million ($119.5 million) that had been due as part of a recapitalisation plan. The Belgians allege that Swissair has engineered its collapse to avoid making the payment.