Swiss runs out of options

Moser says it's Lufthansa that will get the free lunch Keystone

Given current market conditions, most observers now agree that the national airline, Swiss, has little choice but to opt for a takeover by Germany's Lufthansa.

In an interview with swissinfo, aviation specialist Sepp Moser says Swiss management is doing the right thing – but only after throwing billions of francs down the drain over the past three years.

Moser claims both the government and the big banks made the classic mistake of trying to “fool the market” into believing Swiss could survive on its own, and taxpayers and shareholders alike are now paying the price.

Swiss confirmed on Sunday that it is now in a second round of takeover talks with Germany’s Lufthansa, based on a “jointly developed” business model that aims to retain the independence of Swiss “to the extent possible”.

It says that, if the plan is approved by the Lufthansa board, Swiss “corporate bodies” and the airline’s core shareholders, the German carrier will submit an offer based on the average share price of recent weeks.

If that offer were made to all shareholders, that would mean Lufthansa would be prepared to pay nearly SFr500 million for its Swiss neighbour – but Moser points out that this is not the case.

swissinfo: How much do you think Swiss shareholders will get from Lufthansa?

Sepp Moser: Pretty well zero. The price Swiss is referring to is not relevant, as it only applies to a small percentage of shareholders. At a rough guess, the price offered would apply to about five per cent of the shareholders. There is also no premium, so the recent rise in the share price will not be taken into account.

swissinfo: Three years ago, the government and the banks pumped SFr2 billion into Swiss. Now, after several years of heavy losses, the airline could be sold for a token amount. Was the initial investment a complete waste of money?

S.M.: Absolutely. It wasn’t just SFr2 billion, it was nearer SFr4 billion, because of the amount spent initially on trying to prevent the collapse of Swissair. It was wrong in the first place to save Swissair. You cannot reanimate a dead body by replanting it into a healthy body. They should have let the market rule – let Swissair die and continue with [the regional airline] Crossair. What happened was a rape of the market. Economic reality wanted Swissair to die, and you cannot fool reality for long.

swissinfo: If they had done this, where do you think we would be today?

S.M.: Crossair would have survived, because the company was basically healthy. Today, we would have a small Crossair, which would probably have expanded a little – though not much – into the long-haul sector. This would probably look a little like Finnair or Aer Lingus, a small company, but one that would probably make money. The ambitions, which were politically driven – this was very much a “Swiss” issue – were simply too high.

swissinfo: Given current circumstances, do you think a Lufthansa takeover is the best strategy to secure a future of sorts for the airline?

S.M.: Today, this is the only possible strategy. Swiss is effectively broke, even if it is not technically bankrupt. They are losing market share, people, everything. In addition to the visible problems, there are all the invisible ones – for instance, nearly everyone at Swiss today is looking for another job. If nothing happened now, it would probably collapse within a short time or have to downsize even further.

swissinfo-interview: Chris Lewis

Key facts

Plans for a takeover of Swiss by Lufthansa are being presented to the national airline’s main shareholders.
Any deal is subject to the approval of these investors, who include the Swiss government.
Swiss began operations in 2002 following the demise of Swissair in 2001 and the injection of several billion francs by the government and private sector.

In brief

Aviation specialist Sepp Moser says the authorities wasted billions of francs trying to “fool the market” into believing Swiss could survive alone.

Now, reality has caught up with them in the shape of the planned Lufthansa takeover.

Moser says they should have concentrated on developing a smaller, but profitable, regional airline (Crossair).

Links

SwissExternal link

Swiss share priceExternal link

LufthansaExternal link