Belgian carriers SN Brussels and Virgin Express have reached an agreement that will merge the two carriers under a holding company majority-owned by SN's parent, SN Airholding II.
The deal follows a year of intensive talks between the two carriers, which both operate out of Brussels Zaventum. SN Brussels was borne of the collapsed Belgian flag carrier Sabena, while Virgin Express has a low-cost product. The two brands are expected to remain separate under the new agreement, reflecting their different market profiles.
Merger talks between SN and Virgin Express were first held in 2002, shortly after SN's formation, but broke down over issues such as management control and valuation. SN shareholders have in the past signalled that they want to sell out of the airline, and observers in Belgium predict that the merger will smooth the path for a sale.
Intense competition between the two carriers at Zaventum, combined with its close proximity to Ryanair's Charleroi base, has seen both SN and Virgin Express struggle to stay in the black. Virgin Express made an operating loss of €4.3 million ($5.9 million) on revenue of c88 million in the first half of 2004. SN managed an operating profit of €1.9 million on revenue of €287 million. "Our profit margin is small and the market outlook is challenging," SN Brussels chief executive Peter Davies warns. The pessimistic outlook is echoed by Virgin Express chairman David Hoare, who comments: "The harsh market conditions that have prevailed over recent years confirm our view that consolidation is essential in the European short-haul market."
The deal is expected to see SN Airholding control 100% of Virgin Express and 92% of SN. Virgin Group chairman Sir Richard Branson will have a stake in SN Airholding through Virgin Express, which will have a 29.9% stake in SN Airholding. Branson has an 89% stake in Virgin Express through Virgin Sky Investments.
The agreement follows a letter of intent signed back in March, but includes "certain agreed alterations to reflect valuation changes in the present market conditions".
Source: Airline Business
