"An Emblematic Dispute: Brussels Int'l Airport has been the focus of controversy"

Tuesday, December 7, 2004

An emblematic dispute AIRPORTS/ Brussels international airport has been the
focus of controversy.
By John O'Doherty
United Kingdom - The Financial Times


The runways at Brussels international airport are far from the busiest in
Europe.

Yet in the past year this relatively small airport has been the focus of the
type of political and commercial attention normally reserved for its larger
cousins at Heathrow, Frankfurt and Schiphol.

For much of this year, the airport - 13km north-east of central Brussels at
Zaventem - was the subject of political haggling over plans by parcel
company DHL to expand its operations.

The Deutsche Post subsidiary had been seeking a new European hub for its
express courier service and informed the Belgian government that it wanted
to develop its base at Brussels airport, where it had already made
significant investments since 1999.

For Guy Verhofstadt, the prime minister, the issue was of the utmost
importance. His stated priority was to create 200,000 jobs while in office.
The DHL expansion plan promised to create up to 2,000 additional jobs at
Zaventem.

However, negotiations on this seemingly simple issue became bogged down in
Belgium's fractious federal political system.

As discussions continued throughout the summer, the crucial issue of
night-time flights became of increasing importance.

Residents who lived near the airport and under the flight paths of cargo
planes, objected to DHL's expansion plans for an increase in night flights.

Belgium's linguistic communities clashed over whether rival flight paths
would be routed over French-speaking Brussels or its Flemish hinterland.

The dispute became emblematic of Belgium's continuing linguistic divide.

Mr Verhofstadt's inability to find a compromise led him to postpone his
autumn speech to the Belgian parliament, when he was supposed to announce
policy plans for the coming year.

Rumours even circulated that he was considering resigning over the affair.

In the end, the deal foundered on the slightly more technical issue of DHL's
fleet.

Mr Verhofstadt's government was pressing DHL for assurances that it would
reduce its reliance on the noisy MD-11 aircraft for night flights.

Both DHL and the government accused one another of reneging on earlier
agreements. Finally, in late October, DHL announced that it would not be
expanding its operations at Zaventem and that 1,700 jobs would be lost,
starting in 2008.

"We arrived at the point where we have to admit that there was no political
support for our plans," DHL's Peter Kruse said.

"The conditions that the different governments (regional and federal) were
seeking made it impossible for us to turn Brussels-International into an
intercontinental hub."

Mr Verhofstadt meanwhile accused DHL of changing its plans, saying "the fact
that conditions were added, additional planes, more flights, that of course
made matters impossible to solve."

While DHL was seeking to expand at Zaventem because of under-capacity, there
were signs that certain operators in the passenger market were in a less
robust position, with too much capacity. Virgin Express and SN Brussels
Airlines have been in negotiations over a merger for much of this year.

Richard Branson, majority owner of Virgin Express, agreed to a merger
between the two companies last October.

Under the terms of the merger both airlines would maintain their own brand
and keep separate operations but would reorganise their route networks to
avoid duplication. A deal is expected to bring in Euros 44m in savings and
increase pre-tax earnings by Euros 25m-Euros 35m.

Virgin Express and SN Brussels Airlines would be held under a holding
company SN Airholding. A merger would allow Mr Branson to exit the low-cost
air business giving him the option to sell Virgin Express to SN Airholding
for Euros 54m.

"Both of the businesses are in a somewhat fragile financial state and
combining will create a much stronger entity," said Stephen Murphy, chief
executive of Virgin Management.

"I think not everybody (in the European airline market) has shown the sense
of logic that we have now."

Regardless of the differing prospects of the cargo and low-cost passenger
sectors operating out of Zaventem, the overall financial position of the
airport seems solid.

In spite of the fact that Brussels airport was rejected as a hub by DHL,
other operators have found it more attractive. In early November the Belgian
government announced that a 70 per cent share in BIAC was being sold to a
consortium led by Australian bank Macquarie.

Macquarie's Euros 735m offer beat competition from the Spanish construction
group Ferrovial, French concessions company Vinci, and Copenhagen airport,
BIAC's other suitors.

Macquarie Airports has extensive interests in infrastructure and is the
world's second largest private owner and manager of airports.

It already has significant investments in Sydney and Rome with smaller
holdings at airports in Bristol and Birmingham.

Pending approval by regulatory authorities, the deal is expected to be
completed by the end of this year.

It would leave the Belgian government holding a 30 per cent share in BIAC.

News of the sale came a day before DHL announced that it would be locating
its European hub in Leipzig in eastern Germany.

Yet the departure of DHL may not augur well for those living under the
flight path at Zaventem. If Macquarie seeks to maximise the return on its
investment, they may need their earplugs for a while yet.


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