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European Commission Approves Sabena Loan


The European Commission, the European Union's executive arm, has approved a Belgian government loan to the bankrupt national airline Sabena but is insisting that it and other airlines should not be bailed out to prevent them from going under. Europe's airline industry was finding life difficult before the terrorist attacks in the United States on September 11. But since then, life has gotten even harder for them.

The Sabena case is only the most notable example of an industry in crisis. The Belgian carrier, which is one-half owned by the government, has not made a profit in decades. But the government insists its $113 million loan is justified because 12,000 jobs are at stake.

The European Commission, which has a final say on all government aid to companies throughout the 15-nation bloc, says the loan will not hamper competition because it is meant to give time to Sabena to restructure. But it has told the Belgian government that, even though it might approve an extension of the loan, Brussels cannot bail the carrier out just to keep it alive.

Last week, European Transportation Commissioner Loyola de Palacio laid down the law. Speaking through an interpreter, she told European governments they can give some help to their financially troubled carriers but that it should be restricted to losses directly stemming from the September 11 terrorist attacks and their aftermath. By no means, she says, should governments use their money to help airlines cope with problems that existed before September 11.

"We understand that some compensation is necessary for the losses incurred by the industry during the four days during which the U.S. airspace was closed after the attacks, for direct losses or losses directly linked to those events," she said. "Nothing more than that."

That means governments can pay airlines' skyrocketing insurance and security costs. But they cannot keep struggling carriers from going bust.

The future of the European airline industry looks bleak. British Airways has suffered several thousand job losses and cut capacity by 15 to 20 percent. Lufthansa, the German carrier, is cutting routes across the board. But these two airlines are relatively strong and well-managed. It is the weaker airlines like Sabena, Ireland's Aer Lingus, and the perpetually struggling Greek carrier Olympic that are clamoring for money from their governments to keep flying.

British Airways and Lufthansa have joined such low-cost carriers as Ireland's Ryanair and Britain's Easy Jet in objecting to more government aid for the continent's weaker airlines. Lufthansa spokesman Thomas Kropp says carriers like Sabena should restructure or be weeded out of the business.

"We have restructured our company, and Sabena has to work under normal market conditions, and, if they are not able to do so, they have to restructure the company," he said. "They have attempted this, but they have to do this without public money."

One problem for European airlines is that under 50-year-old rules governing international air transportation, they are prevented from merging or buying each other out. An airline that is bought by another runs the risk of losing its international air traffic rights.

Martin Chalk, a spokesman for the European Cockpit Association, a pilots' union, says that, eventually, but not just now, those rules will have to be revised to allow airlines to consolidate.

"We would ask the commission to take a lead in removing those barriers in a thoughtful manner to allow consolidation," he said. "But that shouldn't happen as an immediate reaction to the tragic events of September 11."

European governments do not want to see their flag carriers go out of business, no matter how big their losses. In this, they are at loggerheads with the European Commission, which has ruled against large-scale bailouts. But the two sides have agreed on one aspect of the crisis.

They are worried that U.S. airlines are using part of the $15 billion they got from the U.S. government to undercut European carriers' prices on transatlantic flights. It is airlines like British Airways and Lufthansa that rely heavily on transatlantic business that are complaining the most about what they call "unfair competition."

United Airlines, a big U.S. carrier, says the price discounts it is offering are not related to the government rescue. But European Transportation Commissioner de Palacio, who is investigating the charges, says that if the complaints by European airlines are accurate, that would be anti-competitive and not acceptable.