SAirGroup AGM could become largest event in Swiss economic history

SAirGroup is not out of the woods yet Keystone Archive

SAirGroup's annual general meeting on Wednesday will be the largest in the company's history. It could also become the biggest event in Switzerland's economic history if all 19,000 shareholders who requested entrance cards decide to show up in Zurich.

A massive turnout could pose several logistics problems for the SAirGroup, which had initially planned 7,300 seats. Another 2,500 chairs are currently being placed in another hall, where the AGM will be projected on a large screen.

The SAirGroup spokesman, Jean-Claude Donzel, fears traffic will be chaotic in Zurich. He has already recommended that shareholders use public transport to reach the meeting.

However, Donzel says only half of the 19,000 entrance cards will be used. He says that on other occasions, shareholders had requested up to 7,000 seats, but only 3,000 people had shown up.

SAirGroup, the parent company of Swissair, promised shareholders a new beginning at the start of the month after unveiling losses of almost SFr2.9 billion ($1.67 million).

All but one member of the board resigned in March after taking responsibility for a failed expansion policy blamed for the huge losses. The surviving member, Mario Corti, has taken over as chairman and chief executive and has pledged a return to profitability.

“The mood of the meeting will be very tense,” says aviation analyst, Sepp Moser. “As you can see, the company’s shares on the stock exchange are in free fall so the situation is really dire.”

The company’s shares have been trading at lows last seen eight years ago.

At the news conference to release the company results, Corti gave some idea of how he might stem the cash haemorrhage, but analysts are still holding out for details of how the group intends to return to profitability.

“He’s in a very difficult position,” says Moser, “because people expect everything at once which is impossible, of course.”

Moser is also critical of Corti’s public relation skills. “Unhappily, he’s not a very good communicator. He doesn’t really tell the public what he’s doing so people aren’t convinced he’s doing the right thing,” he said.

Corti has already stopped subsidies for one of the group’s French airlines, Air Littoral. The AGM may see him announce the end of financial support for AOM/Air Liberté as well – two airlines in which the group has a 49 per cent stake.

Any such move will be met with fierce criticism from French unions, which took strike action last week against restructuring plans that could cost almost a quarter of the French workforce.

It could also put SAirGroup on a collision course with the French government, which has called for the company to assume its social responsibilities.

“I would expect [Corti] to say that he will shed almost all foreign investments and to stress the need to rebuild Swissair,” said Moser. But he added that withdrawing from the French airlines would be far more costly than Corti imagines.

The same goes for SAirGroup’s 49 per cent stake in the Belgian carrier, Sabena. Corti is expected to reach a decision on the group’s future involvement with Sabena in the summer.

The board has also decided to sell its hotel unit to generate fresh funds. A consortium of banks is also discussing ways to improve the group’s financial base.

Further strategic decisions will be put to the shareholders at an extraordinary general meeting in the autumn.

Corti and members of the board are facing increasing pressure from the government and Zurich’s cantonal authority, both of which own a three per cent stake in SAirGroup. On Thursday, they both demanded a special audit into last year’s losses and threatened legal action against the board of directors.

Zurich’s director of public prosecutions, Hanspeter Hirt, has already opened an inquiry that is focusing on SAirGroup’s profit and loss accounts to determine if it gave an accurate picture of its real financial situation.

In addition, the economics minister, Pascal Couchepin, and the transport minister, Moritz Leuenberger, have said the board must take responsibility for the company’s financial situation.

“It’s a real threat and must be taken seriously,” says Moser.

Although Corti has begun taking emergency measures to halt SAirGroup’s decline, its turnaround is likely to be a long haul.

“It’s going to take much longer than many people expect,” says Moser, who expects next year to be the critical year for the company.

Some analysts even doubt Corti’s ability to turn the group round and believe elements of the business may become the target of takeover bids by other companies.

by Michael Hollingdale