Beyond Shareholding: The Swissair/Sabena Case and Control of EU Airlines
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- Aviation
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Landmark case on EU airline ownership and control
The ownership and control of an EU airline cannot be determined by shareholding percentages alone. Although the nationality of shareholders is central to the assessment, regulators must also consider who exercises genuine influence over the airline’s strategic and commercial decisions.
The Swissair/Sabena case remains an important example of this distinction. It illustrates how board composition, management appointments, contractual rights and commercial cooperation arrangements may influence the assessment of control — even where an EU shareholder retains a majority of the airline’s shares.
Background to the Swissair Investment
In 1995, Swissair and the Belgian State entered into a Shareholders’ and Master Agreement and a Cooperation Agreement concerning Sabena, Belgium’s national airline.
Under the arrangements, Swissair acquired 49.5% of Sabena’s share capital, while the Belgian State and other Belgian investors retained the remaining 50.5%. The Belgian State also brought its previous arrangements with Air France to an end.
On paper, therefore, Sabena remained majority-owned by EU interests. However, the rights granted to Swissair required a closer examination of who could exercise decisive influence over the airline.
Board Composition and Voting Rights
Sabena’s Board of Directors consisted of 12 members:
- Six members appointed by the Belgian shareholders
- Five members appointed by Swissair
- One further member proposed jointly by the parties
The Belgian shareholders retained the stronger position at Board level. They could prevent the adoption of a Board decision without requiring Swissair’s support, whereas Swissair would require the support of the twelfth director to block a decision.
Nevertheless, the assessment did not stop at the number of directors appointed by each shareholder.
Decisive Influence and Joint Control
In its assessment under the EU Merger Regulation, the European Commission considered the agreements as a whole and concluded that both the Belgian State and Swissair could exercise decisive influence over Sabena’s commercial policy. Several factors were particularly relevant.
Appointment of the CEO
The Chief Executive Officer, who was responsible for Sabena’s day-to-day management, could only be appointed following a joint proposal by Swissair and the Belgian State. This gave Swissair a meaningful role in the appointment of the airline’s most senior executive.
Appointment of Executive Management
The CEO had significant authority in relation to the appointment of Sabena’s executive and second-tier management. Since the CEO was jointly selected, these arrangements further strengthened Swissair’s ability to participate in the airline’s management.
Strategic and Operational Cooperation
The Cooperation Agreement contemplated extensive cooperation between Swissair and Sabena in areas of considerable strategic and commercial importance, including:
- Fleet planning
- Strategic network development
- Financial planning
- Route management
- Yield management
- Sales
- Marketing
These arrangements went beyond a passive financial investment and demonstrated Swissair’s intended involvement in Sabena’s commercial and operational development.
A Common Interest in Cooperation
The Commission also recognised that the parties had a strong common interest in actively managing Sabena together. The Belgian State sought to preserve and develop Sabena as Belgium’s national airline, while Swissair brought significant aviation expertise, operational resources and commercial capabilities to the relationship.
Considering these factors together, the Commission concluded, for the purposes of the Merger Regulation, that the Belgian State and Swissair exercised joint control over Sabena.
Joint Control and EU Airline Licensing
The Swissair/Sabena arrangements were also examined under the airline-licensing rules then contained in Regulation (EEC) No 2407/92, the predecessor to Regulation (EC) No 1008/2008.
Importantly, joint control for the purposes of EU merger law and effective control for the purposes of airline licensing are related — but legally distinct — assessments. A finding that an EU and non-EU shareholder exercise joint control under the Merger Regulation does not automatically mean that the airline fails the EU ownership and control test.
In the separate licensing assessment, the Commission concluded that Sabena continued to comply with the applicable EU ownership and effective-control requirements. Among other factors, the Belgian shareholders retained ultimate decision-making authority through the Board, the cooperation arrangements did not transfer substantive decision-making powers to Swissair, and additional safeguards protected Sabena’s status as an EU air carrier.
The case therefore demonstrates why the complete corporate and commercial structure must be reviewed rather than relying exclusively on the percentage of shares held by each investor.
Relevance Under Regulation (EC) No 1008/2008
Today, Article 4(f) of Regulation (EC) No 1008/2008 requires Member States or nationals of Member States to:
- Own more than 50% of an EU air carrier, and
- Effectively control it, directly or indirectly,
unless otherwise provided under an agreement between the EU and a third country.
These are separate and cumulative requirements. An airline may satisfy the majority-ownership threshold but still face regulatory concerns if contractual or governance arrangements allow a non-EU investor to exercise effective control.
- The assessment may involve an examination of:
- Shareholding and voting rights
- Board composition and appointment rights
- Reserved matters and veto rights
- The appointment and removal of senior management
- Financial arrangements and economic dependence
- Brand, intellectual property or aircraft-use arrangements
- Commercial and operational cooperation agreements
- The practical exercise of decision-making authority
Each structure must be assessed on its particular facts. Minority-protection rights granted to a non-EU investor will not necessarily amount to effective control. However, rights that permit the investor to determine or block key strategic decisions may create regulatory concerns.
Conclusion
The Swissair/Sabena case shows that airline ownership and control is a matter of substance, not merely form. Retaining more than 50% of an airline’s shares in EU hands is essential, but it is not the end of the analysis.
Regulators will look beyond the share register to determine who can influence the airline’s strategic direction, senior management, finances and commercial operations. Investors and airline promoters must therefore consider ownership and effective-control requirements at an early stage and ensure that shareholder, financing and cooperation arrangements are structured consistently with EU aviation law.
How Vaia Legal Can Assist
The aviation team at Vaia Legal assists airlines, operators and investors with the establishment and licensing of aviation businesses in Malta, including applications for an Air Operator Certificate (AOC) and Air Operator Licence (AOL).
We can advise on the applicable ownership and effective-control requirements, review proposed shareholding and corporate-governance structures, and liaise with the relevant Maltese authorities throughout the application process.
To discuss an AOC or AOL application in Malta, or the structuring of an investment in an EU airline, contact the aviation team at Vaia Legal.
