Brussels Airlines future and financial perspective

[convair]

OK, thanks for the clarification André. But are there any "own funds" left?

[fcw]

A question for the financial experts: As the state transformed a 100mio loan into shares, I would expect the state to hold 70% of the shares and the LH part of BruAir must have decreased significantly or not?

[Inquirer]

A question for the financial experts: As the state transformed a 100mio loan into shares, I would expect the state to hold 70% of the shares and the LH part of BruAir must have decreased significantly or not?

Where did you read a share for debt deal was concluded?

[RoMax]

A question for the financial experts: As the state transformed a 100mio loan into shares, I would expect the state to hold 70% of the shares and the LH part of BruAir must have decreased significantly or not?

That loan of 125 million without interests (which was intended for Sabena, but eventually granted to DAT/SN Airholding) was not transformed into shares. With interests the loan has risen to over 150 million of which about 50 million is said to be still in the books, the rest has been remitted over the years of which a large portion at the end of 2012, so SN Airholding doesn't have to pay that money back. Instead if SN Airholding turns a profit, 12.5% of the dividends will flow to the government (through that investment fund).

http://trends.knack.be/economie/nieuws/ ... 778081.htm

[Flanker2]

OK, thanks for the clarification André. But are there any "own funds" left?

Own funds, it depends what you mean by that.

If you mean the net worth, ie assets minus debt, the holding is already below zero according to their balance sheet at the end of 2012 and the reported results for 2013 only make it worse. Please check the balanscentrale/centrale des bilans for the accurate information.

If you mean assets, SN still has liquid assets which can keep it going. However, when you have less assets than debt without positive outlook on the profits or things that can positively affect cash flow , then it comes down to what kind of assets (such as for instance amortised assets that have a lower value in the balance sheet than resale value) you have and guarrantees that they can offer (such as LH or Belgian government agreeing to cover SN's debt if they default).

A question for the financial experts: As the state transformed a 100mio loan into shares

I don't pretend to be an expert, but as Romax pointed out, they were converted into "non-regular shares". Many companies have different share categories, you often see A shares / B shares / preferred shares, etc...
You can have shares that have limited or no voting power. The Belgian government's shares only have voting power regarding mergers and take-overs it seems and even then this would be a minority position, not in direct proportions to the debt they waved.

SN is quite a risk but at the same time it's both:
-a huge employer and a mass in the Belgian economy
-a high ROI candidate if they manage to establish strong business, which they are struggling to do
-for LH, a strategic investment that avoids SN falling into competition's hands

For LH, SN is still a risk that doesn't give returns, so they will prefer to inject small money from outside rather than to incorporate all the risk... this was their plan right from the start it seems. If SN starts making profits, LH will get a reward for the risk it takes, so then they can consider it as an investment.

However, the fact that LH managers are walking in and out of SN offices hasn't helped SN much since LH participated into SN... the other shareholders must be disappointed as well. So one must wonder whether those LH managers are there to help or have other intentions, because I see so many ways for SN to perform much better. For instance I can't help but wonder whether LH isn't impeding SN from opening longhaul routes to Asia, which could help them a lot to Africa but would also boost their overall financials.
Also the fact that they're pushing SN to acquire larger narrowbody aircraft while SN's current operations without additional longhaul aircraft doesn't really justify it.

So the question I ask at this point is whether LH's participation has brought anything perceptibly positive to SN, in a way that SN couldn't have done themselves? At the same time, I ask whether LH could have pushed SN back in a way yet, making them miss opportunities that could have given them a push forward?

Also, when are LH's exclusive rights to acquire the remaining shares going to be waved and what happens then?

[Inquirer]

As Romax pointed out, they were converted into "non-regular shares".
(...)
The Belgian government's shares only have voting power regarding mergers and take-overs it seems.

Actually, I understand it is sometimes difficult not to get lost in translating business vocabulary, but the correct English wording is not 'non-regular shares' as you say, but 'participation certificates (PCs)'.

It's a small but nevertheless subtile difference, as it turns the FPM from a theoretical co-owner to just an outsider with a claim on part of the future profits, hence the whole question by fcw itself becomes irrelevant by simple definition.

With most of the outstanding debt cleared and provided last year they'd have managed to reach their target of just €-20M profit, they'll have become far more ready for the planned takeover by Lufthansa as condolidating figures in that ballpark won't make any material difference to the group's accounts any longer then.

[convair]

It's a small but nevertheless subtile difference, as it turns the FPM from a theoretical co-owner to just an outsider with a claim on part of the future profits, hence the whole question by fcw itself becomes irrelevant by simple definition.

And "FPM" meaning?

Thank you

[fcw]

Thank you for the link Romax.
FPM is the Belgian State, I think.
In short LH gets 45% for 65 mio € and the state only gets 12% of eventual future benefits for over a 100mio€

[Flanker2]

That's right. The 100 million loan from LH was however part of the deal I guess.
ie IMO the Belgian State said to LH: we clear the debts you have with the people and the board extends your call options. In exchange, you keep investing in SN and secure 2500 jobs with a loan for a similar amount.

So I think that the Belgian state did this and the government subsidy program in a desperate move to keep LH on board. I think that LH needed to be convinced to stay on board...

For the government side, it's a justified move. Directly, it levies income tax and airport taxes for more than 100 million a year from SN's operations. Indirectly, it's even more. If SN is left to go under, they would be paying 50 millions in welfare each year. So wiping off the debt and at the same time receiving shares with limited voting power was a justified move.

If LH were a good partner, all these subsidies and bail-out wouldn't be necessary.
So I think that LH doesn't see SN as an airline they want to make money with, I think they see it as a strategic investment to keep competitors away from SN, while investing a minimum.
So far, this plan is working: In the 6 years they owned it, they only spent 65 million euro's. They got some of that money back through maintenance carried out by LH Technik in Malta, catering through LSG and the A332's they are leasing out from LX. They gave a loan but SN is repaying that. Less than 10 million euro's a year seems a wise investment, considering that SN could have become a dangerous competitor in the right hands...

I think that the government and non-LH shareholders need to look for a new partner who is willing to invest in SN to fulfill its real potential.

[RoMax]

Thank you for the link Romax.
FPM is the Belgian State, I think.
In short LH gets 45% for 65 mio € and the state only gets 12% of eventual future benefits for over a 100mio€

FPM (Federale Participatiemaatschappij) coordinates the corporate investments of the Federal Government, such as those in BNP Paribas Fortis in the recent years, but also less significant and noteworthy investments such as that loan to SN.
It indeed can be said that only 12,5% of potential profit is low, but the FPM is ment to stimulate the economy (or simply keep it alive), protect local jobs,... and it was founded that SN wouldn't be able to pay back the full sum of the loan anyway and that it would make it less attractive for a full take over by LH which is the only future for SN. It can be understood, it is legal, but some see it as state support. Well in a certain sense it indeed is state support, but probably even the best/only chance of the FPM to see any money back anyway.

But I think this is an old discussion as well, this dates back to the end of 2012 when SN was in a really bad position (maybe with slightly more financial margins, but a high cost base, a less efficient fleet, a network which still needed a lot of work (of which some has been done in 2013), ...). It was time to act, at that moment SN needed to convince LH about a future and get that loan of 100 million as part of the Beyond 2012-2013 plan. That FPM loan was a black spot in their books, they needed to get rid of it (partly). "State support" to protect Belgian aviation economy...

[Flanker2]

But I think this is an old discussion as well, this dates back to the end of 2012 when SN was in a really bad position (maybe with slightly more financial margins, but a high cost base, a less efficient fleet, a network which still needed a lot of work (of which some has been done in 2013), ...). It was time to act, at that moment SN needed to convince LH about a future and get that loan of 100 million as part of the Beyond 2012-2013 plan. That FPM loan was a black spot in their books, they needed to get rid of it (partly). "State support" to protect Belgian aviation economy...

I think that the fact that LH needs to be convinced time and time again says long about LH's commitment level.
How do you convince the prince to marry the poor Cinderella? Give her a pair of glass shoes, and a nice dress, and... and... and...

[RoMax]

I think that the fact that LH needs to be convinced time and time again says long about LH's commitment level.

Since late 2012 when LH approved Beyond 2012-2013 and agreed with a 100 million loan, I haven't seen major moments anymore where LH needed to be convinced. Of course SN has to prove themself over and over again, but isn't that normal that the largest airline group of Europe has high demands? I only see that as a very good thing. Remember what happened with bmi? Or the long time LH needed for Austrian? Large steps they took with OS were taken after a full takeover, that's what they are doing different with SN now. They want SN to prove they can do it without 100% financial support from LH.

[Flanker2]

I think that the fact that LH needs to be convinced time and time again says long about LH's commitment level.

Since late 2012 when LH approved Beyond 2012-2013 and agreed with a 100 million loan, I haven't seen major moments anymore where LH needed to be convinced. Of course SN has to prove themself over and over again, but isn't that normal that the largest airline group of Europe has high demands? I only see that as a very good thing. Remember what happened with bmi? Or the long time LH needed for Austrian? Large steps they took with OS were taken after a full takeover, that's what they are doing different with SN now. They want SN to prove they can do it without 100% financial support from LH.

What about end 2013 when the government forced the indirect subsidy to Belgian airlines without waiting for EU approval? It was a forced move that was done to calm LH's spirits...
I understand LH's position that they want to see a profit from SN before they go all-in. But I think that that is not the right partner mentality for SN, because SN has potential in the longhaul market. IMO, SN needs a partner that doesn't wait that SN does it by themselves while restricting their potential, but rather provides all the tools they need to become profitable.

LH didn't do even the minimum that they could have done, ie convincing TK to stay out of SN's niche.

Give SN a fleet of 25 widebodies to operate some good longhaul routes (and I don't mean North America in A++), I promise you that they will make a healthy profit on both longhaul and shorthaul, and they won't need to fear FR or VY. SN is at the core of the European market and is a lean operation, they have all the potential of the world to stand next to KL or LX. With a supporting government, they can also develop the Belgian tourism and business market by promoting attractions and events together.

They need a partner who is willing to let them be all they can be, rather than "trekt ouwe plan en als het u lukt neem ik a volledig over /tires ton plan et si tu t'en sors, je te rachète."

[nordikcam]

They need a partner who is willing to let them be all they can be, rather than "trekt ouwe plan en als het u lukt neem ik a volledig over /tires ton plan et si tu t'en sors, je te rachète."

Very interesting ! Which company/partner in your opinion ? Thx !

[Air Key West]

Perhaps Etihad, if b.air hadn't had its hands and legs tied by LH. I won't go into details, but even if I don't agree with everything Flanker has been saying in his recent posts in this thread, I agree with a lot he's suggesting or the questions he's asking. In short : are we heading towards a kind of SR/Sabena scenario (inter alia, with Belgian shareholders believing everything the partner airline is doing must be right...

[nordikcam]

I won't go into details, but even if I don't agree with everything Flanker has been saying in his recent posts in this thread, I agree with a lot he's suggesting or the questions he's asking. In short : are we heading towards a kind of SR/Sabena scenario (inter alia, with Belgian shareholders believing everything the partner airline is doing must be right...

Exactly my opinion too. Thx !

[Inquirer]

Let's maybe look a bit closer at what Etihad is doing before proclaiming it to be such a good alternative?
1- Etihad buy minority shareholding (as they do in a lot of airlines these days),
2- Etihad have them codeshare, mainly to feed their own flights from the home market of the new partner,
3- Etihad keep them afload with loans like Air Berlin?
Sounds a lot like what is being critisised here as not being enough from Lufthansa, to me?

The sobering conclusion is that whatever airlines/investor you can possibly think of, the result is basically always going to be the same IMHO. On top of that, with a shareholder like for instance Etihad, you know you'll be stuck with the current 'in between' situation forever as they can't even take full control legally.

As dull as it may be what I have to say, but a shareholder like Lufthansa (or similar) may be the best you can possibly get: like it or not, but I very much doubt anybody is ever going to give you all the money needed to let you build what they already have themselves, or what they can also simply buy themselves straight away in case they don't: Cinderalla is a fairy tail only, I am afraid, but is shoudn't prevent from dreaming of course.

[Air Key West]

OK. I don't disagree with you. Remember that in my post I said "PERHAPS" Etihad.
The message I wanted to get across (but I probaby failed) was that I blame :
1. LH for not making a decision and just giving b.air the necessary oxygen to survive in order to be able to buy the airline when/if it makes profit and at the same time keeping all the options open including abandoning the airline without any bad feelings ;
2. the other shareholders for apparently not considering (at least, that is how I interpret their attitude) the possibility of LH not buying the remaining shares and perhaps letting LH decide what is best for LH (not for b.air) while LH is still a minority shareholder (hence, my comparison with SR/Sabena).
Of course, then one could ask : if not LH, which other partner ? That's the 36 million dollar question at the moment. The only suggestion I could make to b.air's non LH shareholders is to not give LH additional time than what has been agreed officially so far, to make a final decision. It's better to know quickly that you will be on your own rather than to let your "partner" somehow blackmailing you (sorry for using that term again) by actually saying : we'll buy you if you make a profit, we don't care how you make a profit, even it means making your employees work for peanuts under terrible conditions....
I know this is an extreme reasoning...however....basically, that's what is happening. Or ?

[RoMax]

The only suggestion I could make to b.air's non LH shareholders is to not give LH additional time than what has been agreed officially so far, to make a final decision.

And how should the other shareholders do that? Until 2017 LH has the exclusive option on the remaining shares of SN, until that moment they are bound to LH (unless maybe when LH decides to step out of SN themself, but that's not what they are going to do).

Currently SN is so integrated in the Lufthansa/Atlantic++/Star Alliance network, that they are not even really attractive for other airlines. SN has a strategic value for the LH Group because of Africa and their hub in the heart of Europe in between AMS, CDG and LHR (making it an important market to break the dominance of Skyteam and Oneworld over that part of Europe). Other carriers having an interest in SN? Probably only to make sure they have a (small) competitor less. Unless it would be a major non-European minority investement. But not from Etihad (they don't need a share in SN to have enough acces to this part of Europe), maybe the HNA Group which was also a bit interested in the days SN Airholding was looking for a strategic long term partner. But I doubt HNA will work. I don't see many options besides satisfying LH. Soon there will be a new ceo leading LH, I'm curious to see if LH will continue with the protective and cost-saving way of working as with the current ceo, or a more pro-active strategy (more like the previous ceo).

LH didn't do even the minimum that they could have done, ie convincing TK to stay out of SN's niche.

You think LH has ANY power over TK??? LH has other concerns regarding TK than just SN's African market (also that's one of them), also the fact that TK is simply running away with LH's home market (which is mainly a danger for the FRA/MUC-Asia traffic). The fight with TK has been played up to the highest political levels with the political leaders of Germany and Turkey trying to get TK and LH together. TK was way to greedy and as a result LH stopped every codeshare cooperation with TK. If you think LH didn't try to cool TK down in their expansion (in Germany and Africa) you are very wrong.

[Air Key West]

My interpretation (fwiw as a contribution to the debate) : whether we like it or not, the sad reality is that there is no stopping TK, EK, EY, QR from dominating the Europe to Asia market (and to a lesser extent to Africa) and the Asia to Europe/Africa markets, just as there is no stopping FR (and perhaps other LCCs) from dominating the European market. Only big airlines which can afford to operate European flights for basically feeding their long haul flights will survive in Europe. For this, you need a large and strong long haul network (mainly westward headed in the current situation), which b.air does not have. They missed YUL and imho Haneda (where slots are getting scarcer and scarcer, if not already exhausted..)