Swissair waits for a reprieve as bankruptcy looms

Swissair still has a pulse, but time is running out to save the company from bankruptcy swissinfo.ch

The government is to hold a key meeting on Monday evening to decide whether to help save the Swissair Group from bankruptcy. Meanwhile, the company's management is considering a partial rescue package put forward by the country's top two banks on Sunday.

Monday is being seen as a crucial day of reckoning for the ailing carrier which has run up debts of SFr17 billion ($10.5 million). It is in urgent need of a capital injection and has admitted that it doesn’t even have enough money to pay October’s salaries.

On Monday, the airline’s reservation desk was warning passengers that it could not guarantee flights for the rest of the week.

The group, which was already struggling with debts of SFr17 billion ($10.5 billion), is on the verge of bankruptcy after passenger numbers collapsed in the wake of the September 11 attacks in the United States.

In a bid to keep the group afloat, representatives met the finance minister, Kaspar Villiger, and the transport minister, Moritz Leuenberger on Sunday. Bankers from Credit Suisse First Boston, Deutsche Bank and Citibank also attended the talks, which ended inconclusively.

“Severe damage to the economy”

Swissair Group’s chief executive, Mario Corti, said after the meeting “much work remained to be done”. He warned that if Swissair had to declare bankruptcy it would do severe damage to the Swiss economy.

The supervisory boards of Swissair and Crossair held discussions until the early hours of Monday morning.

An extraordinary meeting of the Cabinet is to meet to discuss the situation on Monday afternoon. Swissair said it would issue no statement until after that meeting.

Meanwhile, UBS and Credit Suisse put forward a partial rescue package on Sunday which would keep parts of the airline flying but may spell sudden death for some airline-related units.

Cash injection

The plan is to provide SFr1 billion ($620 million) to keep the carrier in the air. UBS would provide 51 per cent of the capital and Credit Suisse 49 per cent.

The banks’ proposal could lead to thousands of layoffs at the group’s airline-related businesses. Analysts say the plan would see the group’s regional airline subsidiary, Crossair, buy up the healthy assets of Swissair.

Swissair Group has not yet accepted the banks’ offer and is considering possible alternatives to avoid such a draconian reorganisation. The board’s response is crucial to the livelihood of the group’s 72,000 employees, 21,000 of whom are in Switzerland.

Swissair’s failure would also have repercussions for several other airlines.

The company’s financial problems date back to its failed expansion policy when it bought stakes in financially weak foreign airlines in an attempt to build its own international alliance.

Commitment to Sabena

As a result, it now has to try to honour its commitment to the Belgian carrier, Sabena, in which it has a 49.5 per cent stake. On Monday, Swissair is meant to pay Sabena SFr200 million as part of a deal reached in July with the Belgian government, the airline’s other shareholder.

Under the agreement, Swissair and the Belgian government decided a final SFr635 million capital injection to keep Sabena in business. But a restructuring plan there has met stiff resistance from pilots, who remained on strike for a fourth consecutive day on Monday.

Swissair’s cash haemorrhage to loss-makers in France and Germany also contributed to the company’s growing debt mountain.

The expansion policy was discarded in January and Mario Corti was brought in to implement a new strategy. He has since struggled to extricate the company from its obligations, though he has had some success in ridding Swissair of its liabilities in France.

The former management’s business strategy saw Swissair incur a record SFr2.9 billion loss in 2000.

Last week, Corti unveiled plans for a major restructuring programme that would cost thousands of jobs. The proposals would see the long-haul network cut by a quarter while Crossair would be fully integrated into the group.

The company also said that 3,000 jobs were to go immediately at its catering unit, Gate Gourmet.

Losses since the September 11 suicide attacks in the United States have added to Swissair’s woes. Passenger numbers on transatlantic flights have plummeted by 40 to 60 per cent in the wake of the attacks.

Shares in both Swissair and Crossair have been suspended until Tuesday evening.

Michael Hollingdale with agencies