Belgium plays hardball over Brussels Airlines rescue (2022)

Is Brussels Airlines worth saving?

Tens of thousands of politicians, eurocrats and lobbyists in Brussels might imagine that rescuing the airline that provides most links to the rest of the Continent would be an easy decision for Belgian politicians who know the value of the EU bubble to their country's economy.

But Belgian politics is never that simple.

The country is sinking deep into debt and the prospect of pouring money into an ailing, German-owned airline hammered by the coronavirus crisis opens up fault lines on a number of fronts, including the ever-present tensions between federalists and Flemish nationalists seeking independence for the Dutch-speaking North.

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Belgium's current government is resolutely federalist, but it cannot afford to be ripped off in negotiations with Lufthansa, the parent company of Brussels Airlines. Over the past few decades, Belgium was seen as being too soft in selling off crown jewels like power company Electrabel, Fortis bank and Brussels Airlines.

The flag carrier represents almost 40 percent of passenger traffic at Brussels Airport.

It cannot risk a repeat of that, partly because Flemish nationalists have their knives out. Northern separatists insist that they subsidize the poorer French-speaking South and are keeping a close eye on every last euro the government pays in bailouts to exit from the economic collapse caused by the pandemic.

Brussels Airlines (through its predecessor Sabena) is redolent to many Flemings of an old Belgium run by a Francophone élite, and they argue that Flanders' fortunes are not so tied to the Brussels bubble. Bart De Wever, Belgium's most influential politician and head of Flemish nationalist party N-VA, has openly questioned whether Brussels Airlines should be a priority.

Time to take control

Belgium’s flag carrier was already making losses when it suspended all flights from March 21. Its parent company Lufthansa asked Belgian Prime Minister Sophie Wilmès for a €290 million bridge loan.

Finance Minister Alexander De Croo, in charge of the negotiations, has to avoid the mistakes of Electrabel and Fortis, and wants to give a sense he is in the driving seat.

"It is essential for the government that if aid would be granted — you heard I used a conditional here — employment is guaranteed to the maximum and Brussels Airlines is offered a clear future perspective to grow after the crisis as Belgium’s home carrier,” De Croo told Belgian parliament last Tuesday.

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“If the government … decides to support Lufthansa, the conditions will need to be negotiated … taking into account employment, climate and other societal goals,” De Croo added. “If there needs to be any kind of financing, it would make sense for part of this financing to come from other shareholders, such as Lufthansa’s shareholders.”

Robert Wtterwulghe, from the Catholic University of Louvain, said the government should see this is an opportunity to exert more control.

“Belgium should have kept such a stake from the start, like France did in Air France,” he said. “If Lufthansa keeps all the shares, it will reduce flights with the Belgian neighbors rather than in its home country. Small airlines risk being eaten alive. Belgium should use this opportunity to step into the capital and play a more active role in the management.”

But the Germans have other ideas. In a letter to Wilmès, obtained by Belgian broadcaster VRT, Lufthansa Chief Executive Carsten Spohr said he did not want to let go of the airline.

It remains to be seen, however, how Lufthansa’s own financial position evolves. Lufthansa is negotiating a €10 billion bailout that would result in the government taking a 25.1 percent stake in the airline, according to Der Spiegel.

Thomas Tindemans, chairman at consultancy HK Strategies, argued it is important for Belgium to safeguard Brussels’ role as a diplomatic capital and the seat of many multinationals.

Belgium plays hardball over Brussels Airlines rescue (1)

Clients queue at a Brussels Airlines' desk | Thierry Roge/AFP via Getty Images

“If Brussels Airlines disappears, the airport risks ending up at the mercy of Ryanair," he said, warning that the discount carrier offers lower-quality jobs and transport links.

For many, the loss-making airline is one of the few remaining brands linked to the disintegrating kingdom, with its “Belgian icons” planes covered in images of Tintin, the Smurfs or the Belgian Red Devils, the country’s successful football team.

But nostalgic appeals don't make sense "since Brussels Airlines is now a 100 percent subsidiary of Germany's Lufthansa," said Frédéric Dobruszkes, a professor of aviation at the Free University of Brussels.

No blackmail

Brussels Airlines is a relative minnow. In 2018, it transported 10 million passengers, compared with Lufthansa's 104 million; its €1.5 billion revenue for that year is dwarfed by Lufthansa’s €35.8 billion.

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But for Belgium, it matters. According to Brussels Airport, considered the second “engine” of Belgium’s economy behind the port of Antwerp, the flag carrier represents almost 40 percent of its passenger traffic.

“Belonging to Lufthansa and the Star Alliance is crucial for the intercontinental hub function of our airport … [which] needs to be maintained to secure tens of thousands of jobs at Brussels Airport and the connectivity of our country. The survival of Brussels Airlines is therefore crucial for Belgium and for Brussels Airport,” said Arnaud Feist, CEO of Brussels Airport.

Belgium plays hardball over Brussels Airlines rescue (2)

A man looks at a notice board at Brussels Airport | Thierry Roge/AFP via Getty Images

Ivan Van de Cloot, chief economist at the Itinera Institute think tank, said the government should keep its sights fixed on broader concerns ranging from the budget deficit to the environment.

“Belgium should keep its focus on the bigger picture,” he argued. “Many companies will be knocking at the government’s door for state aid and it needs to use its scarce resources efficiently as any support measures will have an impact on its already dire budgetary situation.”

“In the past, the government has not skilfully managed negotiations in big economic files,” he added. He called on the government to condition any aid on transparency of pricing and environmental goals including noise nuisance and fuel efficiency.

The economist called on politicians to let government administrations and experts have their say about the case, which he said had not happened sufficiently on previous files. "Please use the expertise that is available and don't rely solely on politics, which has happened too often in the past," he said.

That is what De Croo seems to be doing. He told the parliament that the economic risk management group — an expert body set up to analyze and combat the economic consequences of coronavirus — had created a task force within the finance ministry that was carrying out the negotiations with Lufthansa.

Asked if the federal government shouldn't be concerned about Brussels' role as a diplomatic capital, Van de Cloot called such an argument “blackmailing.” International institutions, he noted, won't be moving out of Brussels just because an airline is in trouble.

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