Sabena 'to suspend operations'

The troubled carrier's board is due to meet on Tuesday

LONDON, England -- Debt-laden Belgian national airline Sabena is to suspend operations on Wednesday, Reuters news agency has reported, quoting government and staff sources.

It was known Sabena was fighting for survival with a board meeting and the publication of its business plan due this week.

Most analysts say that with $2.1 billion of debt which it is unable to service, the company has little option but to file for bankruptcy.

It would be the first European Union flagship airline to fail.

The troubled carrier -- which has moved to transfer assets to its Delta Air Transport subsidiary to protect jobs -- was locked in talks with Virgin Airlines boss Sir Richard Branson on Monday over a possible sale or merger of DAT.

Staff sources told Reuters the board would convene on Tuesday followed by a workers' council meeting. There was no word on how long a suspension of operations would last, the agency said.

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Sabena spokesman Wilfried Remans declined to comment on the meeting or the suspension of operations.

A Belgian court granted the 50.5 percent state-owned airline two months' bankruptcy protection early last month after struggling co-parent Swissair, which owns the remaining 49.5 percent, failed to come up with a promised cash injection.

The failure of a struggling European carrier could trigger a series of consolidations. The European airline industry is much more fragmented than that in the United States and mergers have been seen as likely.

Both Sabena and Swissair were already in trouble before the September 11 hijacked airliner attacks in the U.S. plunged the entire industry into crisis.

Sabena Chief Executive Officer Christoph Mueller hinted at the liquidation option in a memo to staff last week, saying no investors were likely to want the whole Sabena group.

He said he hoped to continue some activities through the DAT subsidiary, preserving about half of the airline's 12,000 employees.

Mueller stressed that potential investors refused to acquire Sabena's debt.

Sabena owes its creditors, among them a number of the world's top banking groups, more than $2.1 billion, according to a list of claims filed by Sabena's creditors with a Belgian commercial court.

British entrepreneur Branson met Mueller and Belgium Public Enterprises Minister Rik Daems again on Monday to discuss the possibility of Branson's Brussels-based discount airline Virgin Express taking over or merging with DAT.

A source told Reuters the talks were still continuing.

Daems said after talks at the Sabena headquarters on Monday that he was in talks "to possibly make DAT viable."

"That is very difficult," he added.

The Belgian government backs the plan to transfer some of Sabena's assets and operations to DAT to safeguard up to half of Sabena's 12,000 jobs.

DAT currently employs 1,000 staff. It flew 37 percent of Sabena's European flights and carried 3.3 million passengers last year.

Sabena began transferring take-off and landing slots to DAT last week a move which will increase DAT's staffing to 2,600.

The parent is also cutting destinations -- 10 of its total of 85 this week -- to limit the risk of aircraft being impounded outside Belgium.

The transfer of assets from Sabena to DAT is on similar lines to a decision by Swissair to transfer assets to its regional subsidiary, Crossair.

The European Commission is concerned that a deal with Branson's Virgin Express airline and Sabena may involve illegal state aid.

The Commission is worried that a transfer of assets to DAT could amount to a hidden subsidy if the Belgian government capitalised DAT's balance sheet or assumed the cost of thousands of redundancy payments at Sabena.

European Transport Commissioner Loyola de Palacio has been careful not to allow Sabena direct state aid, insisting that the $113 million from its majority shareholder, the Belgian government, is a bridging loan.

"The rescue aid by its very nature is transitional aid," De Palacio said.

"The only thing it does is provide loans to enable the company to have the initial liquidity to overcome temporary difficulties with a view to submitting either a restructuring plan or a plan to wind up the company once and for all."

Winding up the company is what many rivals are hoping for.

Lufthansa, EasyJet and Ryanair are some of the groups critical of Sabena's aid, saying an unhealthy business should be allowed to fair.

Ryanair chief executive Michael O'Leary told CNN on Monday: "Commissioner de Palacio has done an outstanding job of finally telling these basket-case carriers in Europe, forget it, those days are over.

"Europe now belongs to those big carriers like BA, Lufthansa and Air France and the rapidly growing low fare carriers which are led by Ryanair."

Sabena's creditors were due to vote on the restructuring plan on November 15. The group's protection from its creditors expires at the end of this month.