Swissair's recovery plans received a major boost when the group struck a deal with the Belgian Government which ends its commitment to increase its stake in Sabena from 49.5% to 85% and releases it from further cash calls.

The vexed issue of state funding looms large, however. "The single biggest cloud has been lifted," says Mike Powell, financial analyst at Dresdner Kleinwort Wasserstein. The Belgian Government (which holds the remaining shares) and Sabena had launched a €1 billion ($890 million) lawsuit against the Swiss, demanding they meet their obligations to take an 85% stake or pay the consequences. Swissair Group chairman Mario Corti argued that the commitment to increasing the stake was "unrealistic" given the Swiss group's financial woes.

The compromise will see the two shareholders inject €430 million into Sabena over the next two years, 60% of this coming from the Swiss.

Analysts say that the arrangement seems to have settled the uncertainty surrounding Sabena's and Swissair. "The question we were always asking Swissair was can you exit this situation with the provisions you set aside last year," says Powell. The Swiss say that the costs associated with the deal are covered by the provisions.

However, as part of the agreement, Swissair Group is to take on an order for nine Airbus narrowbodies from Sabena, and analysts are waiting for more details of this to put a true figure on the deal.

Another issue concerns state aid. The European Commission (EC) is already examining the deal struck between the two Sabena shareholders in January for a €250 million cash injection, of which the Belgian Government share was €100 million, and the new agreement is also likely to come under close scrutiny.

Under EC guidelines, a government shareholder must show that its investment is in line with what might be expected of a private investor. In this case, there is a questionmark as to whether the money Swissair is putting into Sabena is backed by commercial logic.

Meanwhile, there is mixed news from Swissair Group's French operations. Air Littoral has been sold to its former management, with an undisclosed cash injection from the Swiss. However, AOM-Air Liberte has filed for bankruptcy.

Although Corti seems confident of finding a buyer, Marc Rochet, the French carrier's chief executive, has reportedly said that none of the 15 offers received so far is commercially viable. As in Belgium, the Swiss are offering a final cash injection (€305 million) as long as it is relieved of future obligations, and says exit costs have once again been covered by last year's provisions.

Source: Airline Business