Virgin Express and SN Brussels have agreed to join forces under a single holding company in a deal that gives Virgin boss Richard Branson an exit route from Virgin Express and paves the way for a possible sale of the combined entity.
Shareholders of the two carriers, both based at the main Brussels Zaventum airport, have signed a non-binding letter of intent that would see SN Airholding, the parent of SN Brussels, own 70.1% of the combined group, with the remaining 29.9% held by holding company VEX, which owns 88.6% of Virgin Express.
A formal plan of how the two carriers would be jointly managed has yet to be worked out, but it is expected that the two will remain as separate legal entities. Virgin Express is focused on the budget sector, while SN Brussels is a full-service carrier. However, the plan envisages "network optimisations" across the two airlines. The carriers compete on routes to Barcelona, Copenhagen, Geneva, Madrid, Milan, and Rome.
VEX will have a put option to sell its 29.9% stake for €64 million ($79 million) in 2005 while SN Brussels will be granted a call option to buy the VEX stake for €100 million in the same time period, valuing the combined entity at between €214 million and €334 million.
Virgin Express, which Virgin formed in 1996 after buying EBA, an early no-frills contender, has failed to achieve the success of the likes of Ryanair and easyJet. Branson is focusing on the launch of Virgin USA, after success with Virgin Blue in Australia.
SN shareholders, meanwhile, have made no secret of the fact that they do not see their investment as long term. The carrier was born out of the collapse of flag carrier Sabena towards the end of 2001, with local business figures putting up their own money to ensure that Belgium continued to have a national carrier - or at least a scaled-down version of one. British Airways would be an obvious candidate if and when SN is put up for sale. The two carriers have developed a close relationship over the last couple of years. Under the terms of the Virgin-SN deal, VEX will receive a bonus payment if SN shareholders sell out.
A binding letter of intent is expected to be signed in the next few months. The two carriers held merger talks in 2002, which were scuppered over issues of valuation and management control. VEX was then demanding a half-share in any merger deal.
Both Virgin Express and SN have struggled to stay in the black against a background of intense competition in a smaller market once the connecting traffic offered by Sabena was taken away. Ryanair has also been offering stiff competition from nearby Charleroi.
SN scraped a €600,000 profit on revenue of €533.5 million in 2003. Virgin Express has yet to report the full year results, but made a net profit of just €1.7 million on revenues of €62.1 million in the traditionally profitable September quarter.
Ever since SN emerged as a very slimmed-down version of Sabena, industry observers have questioned the wisdom of two carriers competing out of Brussels Zaventum.
Source: Airline Business
