As America's business scandals resonate throughout Europe triggering a slew of safeguards meant to improve corporate transparency and accountability the unmistakable sound of tut-tutting can be heard across the Continent: many business leaders contend that Enron-style abuses simply couldn't happen on their turf. "Our situation is profoundly different from the American one," says Daniel Bouton, CEO of the French bank Société Generale and head of a corporate governance group set up by French business. "We already have the supervision here that is now being put in place in the U.S."
Maybe so, but in Brussels a very different picture is emerging about the efficacy of European corporate oversight. Over the past nine months, dozens of people involved with Sabena, from ground staff to pilots to top management executives and board members, have testified before
Langendries' 15-member commission. While sometimes contradictory and self-serving, their testimony adds up to a devastating indictment of the way Sabena was run. It's the tale of a chronically undercapitalized and uncompetitive company driven to ruin by a flawed expansion policy and an ill-fated alliance with Swissair. And throughout, a passive and heavily politicized board of directors signed off on one strategic blunder after another. Langendries says he doesn't want to pre-empt the commission's official findings, which are due by the end of the year, but one conclusion is indisputable. "There were bizarre goings-on everywhere at Sabena," he says, "and not just with the Airbus."
Bizarre may be too mild a term. Parallel to the commission's work, Belgian magistrate Jean-Claude Van Espen is conducting a criminal inquiry into Sabena. His probe is based on three separate suits filed by former workers. Details of his investigation and the suits themselves are confidential, and no charges have yet been filed. But the plaintiffs have handed over evidence they say indicates criminal wrongdoing. Union activist Philippe Doyen has made especially explosive allegations, which he says he'll substantiate in court. Last month, Van Espen raided Airbus headquarters in Toulouse and took away documents. An Airbus spokesman says the company doesn't comment on legal affairs.
Sabena was in trouble for years. Founded in 1923, it flew routes across Europe and within the Congo, Belgium's African colony, and grew rapidly in its late-1940s-and-1950s heyday. Then came the end of the colonial period, the 1970s fuel shocks, labor strife and mounting losses requiring regular government bailouts. By the 1980s Sabena was being lampooned as a bottomless pit. An attempt at restructuring in 1982-83 brought some respite, but in the rapidly changing world of commercial airlines, the carrier was too small, its costs too high. Sabena needed a partner to survive.
The fateful deal with Swissair was signed in May 1995, after Sabena's attempts to ally itself first with SAS, British Airways, KLM and finally Air France collapsed. The Belgians were delighted. "Swissair was seen as a flying bank," says Gérard Gobert, a commission member. Under the agreement, Swissair took a 49.5% stake in the Belgian carrier with an option to increase that later. At the time, Swissair was embarking on an aggressive expansion, later dubbed its hunter strategy, which involved making alliances with and taking equity stakes in other small airlines in a bid to become one of the big players in Europe. Doing a deal with Sabena gave the Swiss access to a hub in Brussels, the heart of the European Union. Even without a majority stake, they were given operational control of Sabena.
Sabena's new Swiss CEO, Paul Reutlinger, the former marketing chief at Swissair, began pushing a rapid-expansion policy. During his tenure, from February 1996 until August 2000, Sabena more than doubled the number of passengers it transported, to over 10 million, and added two-dozen new destinations. Its overall capacity grew by 97%, three times the average of European airlines, according to an audit carried out on behalf of Sabena pilots. When it reported a profit in 1998, the first in more than a decade, all of Belgium applauded. But behind the scenes, the true picture was far from pretty: the results were a fluke, buoyed by strong industry conditions and onetime earnings. In reality Sabena's finances were chronically weak even before the gigantic Airbus bills.
Reutlinger left Sabena to take over Swissair's French airline operations in August 2000. Veteran Lufthansa executive Christoph Müller took over as Sabena CEO and immediately realized the danger. Within a month he outlined a drastic restructuring plan, dubbed Blue Sky. "You didn't need to be a rocket scientist" to know Sabena was in serious trouble, Müller says. "You just needed to read the balance sheet." The Airbus deal in particular saddled Sabena with impossible red ink. Müller points out that the Sabena order at the time was twice the stock-market value of Swissair, its bigger partner. "You cannot commit to an investment volume that exceeds the capitalization," he says. "It doesn't require airline operating experience to know that."