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Wednesday, 3 October, 2001, 17:36 GMT 18:36 UK
State rescues Swissair
Staff demonstrate against Swissair's collapse
This week's chaos has sparked anger among staff
The Swiss government has thrown collapsed airline Swissair a 188m lifeline so it can resume flights until the end of the month.

Swiss finance minister Kaspar Villigier said: "The flight operations of Swissair will be secured until 28 October by a government credit of 450 million francs."

The crippled flag carrier grounded all flights indefinitely on Tuesday after admitting it had run out of cash.

The move followed a 1.4 billion franc bail-out offer from two of Switzerland's biggest banks, UBS and Credit Suisse, aimed at rescuing most of Swissair's flight operations.

But money from the package did not get to Swissair's accounts in time to keep the cash-strapped airline flying.

Swissair said it now hoped to resume flights on Thursday, although its service would be reduced.

Swissair chief Mario Corti said the airline reserved the right to cancel flights in the coming weeks if they were not at capacity.

Stranded passengers

Thousands of passengers were stranded on Wednesday and there was chaos at Swissair's Zurich airport hub, following Swissair's collapse.


Trust in the Swiss economy, trust in the whole of Switzerland... will be dragged into the mud

Swiss President Moritz Leuenberger

An estimated 38,000 passengers were affected around the world.

The knock-on effect of the Swiss airline's troubles was also felt in Belgium, where national flag carrier Sabena, 49.5% owned by Swissair, filed for bankruptcy.

Sabena is receiving Belgian government help, and may be relaunched on a more modest scale.

Share slump

The Swiss government has expressed its fury at the airline's failure.

"Trust in the Swiss economy, trust in the whole of Switzerland - which after all has a reputation as a serious, punctual country - will be dragged into the mud," fumed President Moritz Leuenberger.

Meanwhile, Swissair shares fell 84% in Zurich after being suspended for two days.


We believe Swissair Group shares effectively look worthless

Investment bank Merrill Lynch
The suspension was to allow the airline to conclude a rescue package with Swiss banks UBS and Credit Suisse, which would allow it to continue flying while other parts of the group's business filed for bankruptcy.

Click here to see a graph of Swissair's share price

Transferred

Under the rescue package, most of Swissair's remaining profitable assets including many of its planes and landing slots will be transferred to its 70%-owned regional subsidiary, Crossair.

Marcel Ospel, chairman UBS, and Mario Corti, Swissair chairman
Swissair stitched up a partial deal over the weekend
That stake is being taken over by UBS and Credit Suisse, which are supplying 500m francs of working capital and a capital injection to Crossair of 350m francs.

But as analysts at Merrill Lynch pointed out, that leaves Swissair with nothing but its unprofitable catering and ground operations and an estimated 7.5bn franc debt burden.

"Even before the terrorist attacks in the US on 11 September the Swissair Group faced a precarious outlook," the bank's analysts said.

"We believe Swissair Group shares effectively look worthless."

Trials and tribulations

The rescue package was intended to allow Swissair services to continue smoothly.

But the airline's creditors moved in more quickly than expected, and on Tuesday it was forced to ground all its 262 flights immediately, leaving more than 17,000 passengers stranded.

A Crossair plane passes Swissair craft
Crossair is taking over most of the airline's operations
Several of Swissair's planes were impounded at European airports while fuel suppliers were demanding pre-payment for refuelling, fearing bills would go unpaid.

With passengers unlikely to get refunds or, indeed, any other help from Swissair, German rival Lufthansa has added extra flights to Zurich to take up the slack, while Austrian Airlines shifted to higher-capacity jets on its Vienna-Zurich route.

And UK budget airline Easyjet said it would fly anyone with a now-worthless Swissair ticket between Switzerland and the UK, Barcelona or Nice for just 20.

UBS, which has been blamed by both media and government for the Swissair meltdown, received a bomb threat at its Zurich offices, and was picketed by a crowd of several thousand demonstrators.

Beyond the borders

Swissair's troubles are affecting a range of other airlines, from Belgium to South Africa.

Swissair stakes in other airlines
Sabena - 49.5%
LTU (German) 49.9%
South African Airways - 20%
Volare (Italy) - 49.7%
LOT (Poland) - 37.6%
Crossair - 70.35% (bought by banks Credit Suisse and UBS)
Balair (Swiss) - 100%

Source: AFP

The airline's financial difficulties stem in large part from a policy in the 1990s of rapid overseas expansion involving investments in a number of financially weak airlines.

These included French regional airlines Air Littoral, Air Liberte and AOM as well as Sabena.

Swissair also has minority stakes in, among others, South African Airlines, Polish airline LOT - which is hoping Swissair will sell up as quickly as possible - and Italian regional carrier Volare.

The investments policy - a "spectacular failure", according to Merrill Lynch - devastated Swissair's finances well before the aviation slowdown following 11 September.

While Air Liberte and AOM could survive, having slashed jobs, Sabena - which could sue after Swissair cut off promised funding - appears close to collapse.

And Portugal's state-run TAP could also go to court for compensation. Swissair had planned to take a stake in TAP at privatisation.

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 WATCH/LISTEN
 ON THIS STORY
The BBC's Simon Montague
reports on the deepening crisis for Europe's national airlines
Kevin Lyne Smith, Bank Julius Zurich
"Sabena suing Swissair is like launching an unguided missile"
See also:

03 Oct 01 | Business
US airlines cut fares to spur travel
02 Oct 01 | Business
Swissair: Proud past, grim future
02 Oct 01 | Business
Q&A: Swissair in crisis
02 Oct 01 | Business
Swissair grounds all flights
02 Oct 01 | Business
Q&A: Booked on Swissair?
03 Oct 01 | Business
Sabena fights to survive
02 Oct 01 | Business
Airline collapse dents Swiss pride
02 Oct 01 | Business
Swissair accepts rescue plan
26 Sep 01 | Business
Aviation firms axe 26,000 jobs
30 Aug 01 | Business
Swissair cuts 1,250 jobs
09 Aug 01 | Business
Sabena flies into jobs storm
30 Jul 01 | Business
Pilot rescues French airline
02 Oct 01 | Europe
Swissair passengers stranded
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