Swiss plans capital cut as slump continues

Swiss has fallen prey to the global travel slump Keystone

Switzerland's national carrier, Swiss, says it plans to reduce its capital and halve its orders for new Embraer planes in a bid to cut costs in an economically hostile environment.

The company’s CEO, Andé Dosé, told investors at the company’s annual meeting that 2003 could be the worst in aviation history.

The company stressed that it would not break even this year as the Iraq crisis dampened demand for air travel.

Swiss added it was impossible to forecast results for the current year due to the uncertain global situation.

It said it expected demand for air travel to be “modest at best”, with people thinking twice about boarding a plane given the war in Iraq and the gloomy economic climate.

Swiss said it believes that the war in Iraq will cost the airline between SFr150 million ($108 million) to 250 million this year alone, if the war is short.

William Meaney, the company’s managing director, said he was more concerned about the state of the German economy than the war in Iraq.

“If I could wave a magic wand it would be to improve the economy in Germany, because it’s one of our largest trading partners and it’s one of our biggest markets for attracting passengers,” Meaney told swissinfo.

Revenues were likely to suffer further from global overcapacity and fierce price competition, said the airline.

Falling revenues

Swiss asked shareholders to approve a capital reduction to avoid net equity from falling below 50 per cent, an event that would trigger remedial action under Swiss law. It said it planned to cut the par value of shares from SFr50 to SFr32.

The airline said this would “reduce the discrepancy between the nominal value and the share value of Swiss shares and bring tax benefits for the company.”

But the move was viewed with scepticism by some analysts.

“We still recommend selling the stock given the high uncertainty and risks,” Zurich Cantonal Bank said in a statement.

Embraer order cut

Swiss said it would cut its order for 60 Embraer aircraft by half and delay by one year the delivery, originally planned to start in September.

“There will be no new Embraers this year,” a spokesman said, adding the first delivery would be in 2004 and the second batch would follow in 2006. The move would save the company around SFr1 billion, he said.

Earlier this month, Swiss posted a net loss of SFr980 million for 2002, its first year of operations. The operating loss totalled SFr909 million on revenues of SFr4.28 billion.

When the airline was launched last year in the wake of the Swissair collapse in 2001, Dosé said he hoped to limit its first-year losses to SFr1.1 billion.

Since last November, Swiss has announced the loss of 1,000 jobs and a cut in its fleet by 20 aircraft. The spokesman said there were no further job or fleet cuts planned at the moment.

In a separate statement, the airline said it had appointed Ulrik Svensson as its new financial officer and Manfred Breenwald as its new chief operating officer.

swissinfo with agencies

Swiss summary

Swiss is to reduce the value of its shares from SFr50 to SFr32.
It hopes this will prevent continuing losses pushing net equity below 50 per cent.
The airline also announced it would halve its order for 60 new Embraer planes.
Ulrik Svensson has been appointed new finance chief, while Manfred Brennwald is the new chief operating officer.