Shares in Swissair opened 14 per cent higher on the Swiss stock market on Wednesday after news came in late on Tuesday that the Swiss flag carrier had settled a long running battle with Sabena, the loss-making Belgian carrier.
Swissair's shares started to recover last week after executive chairman, Mario Corti, announced plans to cut costs at the airline. Shares had plummeted over the course of the year as the airline struggled to find a way to recover from last year's SFr2.9 billion ($1.66 billion) loss.
Within the first few minutes of trading on Wednesday Swissair's shares had put on 14 per cent at SFr117. They were worth SFr120 at the close of the stock market.
The positive reaction was to news that the Swissair Group had limited its future exposure to the loss-making Belgian carrier, Sabena, by agreeing to pump nearly €260 million (SFr390 million) into the airline. The deal frees Swissair from a commitment to raise its stake in Sabena, and heads off potentially damaging lawsuits.
Under the agreement, announced in Brussels on Tuesday evening, Swissair and the Belgian government are to invest a further €430 million to support the struggling carrier.
Swissair, which has a 49.5 per cent stake in Sabena, is to provide 60 per cent of the funding, with the Belgian state - the majority shareholder - making up the balance.
The deal draws a line under Swissair's problematic engagement with the carrier, and frees it from a commitment to increase its stake to 85 per cent. In return for Swissair contribution, the Belgian government and Sabena have agreed to drop separate lawsuits against Swissair, which they launched this month.
Christian Häfti, chief equity strategist at UBS Warburg told swissinfo that the news of a deal between the Belgian government and Swissair on Sabena did resolve the uncertainty surrounding the company.
"It does resolve one big uncertainty on the horizon of Swissair, namely the fight with the Belgian government as they won't have to increase their stake and therefore that's a big positive," explained Häfti. "It also proves that Mr Corti is a very capable manager.
Bank Leu's Eleonore Charrez told swissinfo that she agreed that the airline had successfully manoeuvred a positive turnaround under Mr Corti.
"This is certainly very good news because in the past couple of days there have been fears that Swissair and the Belgian government might meet in the courts," said Charrez. "Now the compromise is higher than Swissair had originally expected but it's over four instalments over the next couple of year so that reduces the money pressure."
The settlement is much-needed boost to Swissair, which is struggling to disentangle itself from a string of loss-making commitments abroad. These were acquired during a disastrous expansion strategy, which has nearly driven the group into the ground.
This latest rescue plan for Sabena is likely to come under scrutiny from the European Union's competition authorities, who are already considering investigating an earlier cash injection from the Belgian government.
The deal also frees Swissair from any further funding obligations to Sabena. "This will reassure our lenders and shareholders concerning future funding... and removes the uncertainty created by the various lawsuits which have been filed against us," said Swissair boss, Mario Corti.