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Tuesday, 2 October, 2001, 19:06 GMT 20:06 UK
Swissair: Proud past, grim future
Swissair Airbus A319 plane
Swissair: Swift descent into financial disaster
By BBC News Online's Bob Trevelyan

Swissair, the crisis-hit Swiss national carrier, describes itself on its website as one of the world's outstanding airlines and says the facts and figures speak for themselves.

Which, in a sense, they do.

Swissair's share price has fallen about 80% this year while the company has reported the biggest annual losses - 2.9bn Swiss francs ($1.7bn; 1.2bn) - in its 70-year history.

As a result, nine of 10 board members are leaving. The chairman and chief executive have both taken the emergency exit while the airlines division boss bailed out after just two months in the job.

Thousands of job losses were announced and 10,000 angry investors turned up to harangue company bosses in April at what was probably the largest shareholder meeting in Swiss corporate history.

As if this wasn't enough, Swiss authorities opened a criminal investigation into whether Swissair's parent company acted illegally in amassing such large losses.

Then came the 11 September terrorist attacks on the US, which dealt a heavy blow to the airline industry in general.

In Swissair's case, it might yet turn out to be the coup de grace.

Disastrous expansion

Despite the agreement of a "rescue package" with Swiss banks UBS and Credit Suisse, the airline's entire fleet has been forced to the ground indefinitely because fuel providers and airport operators, among others, are refusing to do business with Swissair, fearing bills will go unpaid.

Unlike the immediate problems facing some US airlines in the aftermath of 11 September, Swissair's wounds are largely self-inflicted.

The source of the present crisis lies in a disastrous expansion programme put in place in the 1990s, under which the airline took substantial stakes in a number of financially weak airlines.

The effect of heavy financial commitments to struggling carriers such as Belgium's Sabena and French regional carriers Air Littoral, Air Liberte and AOM, was to drain resources away from Swissair itself.

Although Swissair has tried desperately in the past few months to pull back from any more commitments to these airlines - risking the threat of legal action - and jettison some stakes entirely, it now appears that this backpedalling was a case of "too little, too late".

Dim view

Under plans announced on Monday, the airlines division is to be folded into Swissair's Crossair subsidiary while other businesses, such as catering, hotels and ground services, are filing for bankruptcy.

With Swissair's business partners taking such a dim view of the arrangements, it remains unclear whether the Crossair deal can be made to fly.

At least one airlines analyst is predicting that the airlines unit will follow the other businesses into bankruptcy within weeks.

It is a sad position for one of Europe's most prestigious airlines to find itself in.

Canadian disaster

Swissair was established in 1931 through the merger of Balair and Ad Astra.

By 1947, the Zurich-based airline was operating a DC-4 service to New York - becoming one of Europe's first airlines to serve the US commercial capital.

In the same year, it was designated Switzerland's national airline.

Ten years later, Swissair started scheduled services to the Far East.

The route map expanded rapidly, taking in such far-flung destinations as Anchorage, Buenos Aires, Brazzaville and Taipei.

The airline's safety record was good. But, in 1998, Swissair suffered its worst disaster when a MD-11 crashed off Canada because of a technical fault.

All 219 passengers and crew were killed.

Enviable reputation

By 1995, Swissair had 17,000 employees - but then it began its ill-fated investment drive.

An extensive corporate restructuring the following year savaged staff numbers but investments continued.

After acquiring a stake in Belgium's Sabena, the Swiss carrier targetted Ukraine International Airlines, Austrian Airlines, Poland's LOT, South African Airlines and a host of smaller, regional outfits.

Despite doubts being raised about the wisdom of these investments, Swissair itself seemed financially secure and retained an enviable reputation for in-flight service and punctuality.

Customers enjoyed leather seats in economy class while the branding - based on the Swiss flag - seemed to enhance the image of reliability and financial health.

(The white cross on red background was not to everyone's taste though - Saudi Arabia told Swissair to switch off its planes' taillights when landing at Riyadh and Jeddah so the image would not be visible to the kingdom's nighttime plane spotters.)

Merger mooted

In the end, the unravelling of Swissair's financial fortunes has been remarkably rapid - as recently as the first half of last year the airline was still making a profit.

Several times in the past few years, Swissair was mooted as a potential merger partner for British Airways, Europe's largest airline, which has itself fallen on hard times.

With Swissair now stuck on the tarmac and seemingly heading the queue of European carriers facing the abyss, British Airways can at least draw a crumb of comfort from the fact that one of its rivals is doing even worse than it is itself.

See also:

02 Oct 01 | Business
Swissair grounds all flights
02 Oct 01 | Business
Q&A: Swissair in crisis
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