British, Dutch to Buy Stake in New Airline

British Airways PLC and KLM Royal Dutch Airlines each plan to buy a 20% stake in a newly formed Sabena World Airways for a combined total of $110 million, the British airline announced Wednesday.

The other 60% of the new airline will be held by parent company Sabena SA, which is controlled by the Belgian government, British Airways said.

The new airline, formed after nearly six months of negotiations, is scheduled to start operations at the beginning of next year, extending Sabena’s present route network with a “hub and spoke” system centered on Brussels’ Zaventem International Airport, British Airways said.

The new company will link the operations of the three airlines into a tight network allowing to provide same-day round-trip travel between 75 European cities from Zaventem. Sabena said facilities at Zaventem will be upgraded for the Euro-hub system to be fully operational by 1995. Zaventem airport is also directly linked by rail to the Trans-Europe-Express railway system.

The new corporation will not affect the existing structure and operations of the three European airlines nor will it result in layoffs at Sabena, the Belgian carrier said.

British Airways’ stake cost $55 million (34 million pounds), while KLM confirmed that its stake cost $55 million (107 million Dutch guilders).

The British carrier said the new Sabena airline is expected to exploit opportunities emerging from the progressive liberalization of European air transportation.

This will include intercontinental routes such as linking Brussels with Manchester in Britain for some services to North America and the Far East and linking Brussels with Amsterdam for some services to Africa and South America, it said.

In terms of passenger-kilometers (one fare-paying passenger carried one kilometer), the new company is expected to treble Sabena’s current size in six years, British Airways said.

Last year, Sabena reported 1.2 billion passenger-kilometers, ranking it 16th among European airlines, according to the Assn. of European Airlines.

British Airways ranked first and KLM ninth by that measure.

The board of Sabena World will have 10 members with six coming from Sabena and two from each British Airways and KLM. Sabena’s chairman will be Carlos van Rafelghem, who is currently chairman and chief executive of Sabena SA.

European airlines have been scrambling to buy into other airlines and form joint ventures to become better competitors in the face of increasing deregulation and globalization of the travel industry.

British Airways attempted to buy a 15% stake in United Airlines of the United States earlier this year, but abandoned the effort after the management bidding group encountered difficulties lining up the financing.

This forging of ties has raised concern in some quarters that Europe’s airlines eventually will be concentrated into two or three blocks, which could hurt competition and ultimately hurt the consumer.