Tuesday October 2, 04:12 PM

Swissair stops flying as cash runs out

By Marcel Michelson

ZURICH (Reuters) -

Swiss airline Swissair has stopped flying after what little cash it had left ran out, fuel supplies dried up and airports insisted on prompt payment of landing fees.

"Despite intensive talks during the entire day, it was not possible to secure the liquidity necessary for the daily business and safe operations," Swissair said in a statement on Tuesday.

The unprecedented, indefinite halt in Swissair's operations highlighted the immense depth of the financial crisis at the once-proud Swiss flag carrier, which on Monday was promised a hastily arranged 1.4 billion franc (590 million pound) cash infusion from Switzerland's two leading banks.

Swissair said the suspension of operations would put even more jobs at risk than the 2,650 redundancies announced as part of the drastic restructuring programme that was designed to save part of the collapsed group's airline activities.

At Zurich airport, the airline's home base, a message over the loudspeakers told hundreds of stranded passengers they would not be compensated for their now apparently worthless Swissair tickets and advised them to buy new tickets elsewhere.

Swissair Group's finances, already stretched to the limit by a failed expansion strategy, had melted down after the September 11 airline attacks in the United States prompted a drastic fall in air traffic around the world.

Banks UBS and Credit Suisse Group stepped into the breach, salvaging the Swissair brand and most of the airline from the group. But they left Swissair's other businesses to deal with some 17 billion francs of debt raked up as the group tried to buy its way into the big airline league.

The bulk of Swissair's airline operations were to be combined with regional carrier Crossair after the banks took over Swissair Group's 70 percent stake in the smaller but healthier airline. The remainder of Swissair Group will file for creditor protection, and thousands of jobs will be lost.

But in a sign that the emergency rescue plan may run into difficulties, a Crossair spokesman said in a first reaction the Swissair flight suspension would make the merger more difficult.

WAITING FOR THE MONEY

Company sources said flights were grounded as pilots waited for cash to pay for fuel deliveries and landing fees. Jet fuel suppliers at Swissair's Zurich hub halted all deliveries because of the cash woes, an industry source said.

Earlier, the group said two planes were impounded at London's Heathrow airport by operator BAA (LSE: BAA.L - news) over outstanding landing charges. One was later released.

The airline has a fleet of about 77 planes.

Thomas della Casa, analyst at Deutsche Bank in Zurich, said he feared that 250 million francs in liquidity promised by the banks on Monday -- but which apparently has yet to be transferred to Swissair -- would last for less than a month.

Analysts said Swissair shares were set to become worthless when trading resumes on Wednesday. Shares in Credit Suisse fell over eight percent on Tuesday to become the top European blue-chip loser, and UBS lost over four percent.

CS said in a statement it expected to take about 100 million francs in third-quarter provisions for 238 million francs of unsecured loans to Swissair Group.

Swissair bonds continued to slide on Tuesday on worries that bondholders will not recoup their investments.

Union officials said job losses at the group could exceed 10,000 and said they were planning protests on Wednesday.

"The employees are very worried because nobody knows who will be in the parts that file for creditor protection and who will go to Crossair," Richard Dunkel, chairman of the Personal Union SAir Holding (PUSH), told Reuters on Tuesday.

FALL FROM GRACE

The amazing fall from grace of Switzerland's once-proud carrier was set to reverberate throughout the small nation's economy. Zurich's Unique Airport, the hub of Swissair, said it expected its business would be hurt in the short- and medium-term but said its existence should not be endangered. Its shares were also suspended until Wednesday.

In Geneva, the director of the country's second-biggest airport, Cointrin, said he expected the new Crossair to link up with bigger airlines. "This country needs an airline company that performs. It is likely that the management of the new Crossair will align itself quickly with another major European carrier like Lufthansa, British Airways (LSE: BAY.L - news) or Air France," Jean-Pierre Jobin said.

William Gaillard, spokesman for the International Air Transport Association (IATA), agreed that Switzerland, a country of 7.2 million people, needed efficient air transport.

"They were always at the forefront of quality. The demise of such a company is obviously a shock to everyone," he said, noting that Swissair had been deeply in debt long before the September 11 suicide attacks put the last nail in its coffin.

Swissair's woes also had immediate repercussions for other airlines. It earlier halted all flights to Brussels out of fears of a repeat action by employees at its equally troubled affiliate Sabena, which earlier this year grounded one of the company's jets in an attempt to force Swissair -- a 49.5 percent shareholder -- to pay up for its own rescue plan.

NO MONEY FOR SABENA

Swissair Group Chairman Mario Corti told Belgium's Prime Minister on Monday that fresh cash due to Sabena would not be paid. That could spell the end for Sabena, which Swissair jointly owns with the Belgian government.

Brussels responded immediately, threatening legal action against Swissair and possibly UBS and Credit Suisse. The Belgian government was exploring possibilities ranging from bridge financing to bankruptcy protection to keep Sabena flying.

Swissair Group also suspended payments to charter group LTU in Germany, and will not honour outstanding obligations to former partners Air Littoral and Air Liberte in France.

The Polish government said it would consider finding a new partner for flagship carrier PLL LOT as Swissair is expected to give up its minority stake in this company as well.

Swissair was also set to sell its 33.7 percent stake in Cargolux International Airlines, an industry source said.

South Africa's government said it had first call on Swissair's 20 percent stake in South African Airways (SAA).

-- PHO (owennos@bigfoot.com), October 02, 2001

Answers

Symbolically this is a rabbit punch to the European airline industry. Swissair has long held a position of high prestige and prominence in that continent's air travel.

-- Wellesley (wellesley@freeport.net), October 02, 2001.

The inevitable consequence of megalomanic expansion. An old Swiss proverb states: "The pot goes to the fountain until it breaks". It broke this afternoon. One wonders why anyone is surprised, given the fact that business practices that stood the test of time were discarded in favor of delusional ideas of "globalization"- and wonders who will be next.

-- Swissrose (cellier3@mindspring.com), October 02, 2001.

Headline: Airline collapse dents Swiss pride -- Switzerland's press asks what happened at Swissair

Source: BBC News, 2 October 2001

URL: http://news.bbc.co.uk/hi/english/business/newsid_1575000/1575645.stm

A man sits on his suitcase, in the middle of Geneva`s airport lounge and looks around him sheepishly. "I know I should have followed the news," he says. "But I didn't - and now I'm stuck here with a ticket for an airline I'm told doesn't exist anymore. If I'd known that Swissair was heading for the dogs, I'd have cancelled my ticket last week."

Most people do seem to know that Swissair has grounded all its flights.

Geneva airport, normally teeming with passengers catching connecting flights or flights to Europe, is practically deserted. Those who were expecting to catch a Swissair plane tonight have largely stayed at home, knowing that the company, which for 70 years was the symbol of class and quality, is now bankrupt.

Flying nowhere

On the runways and in the hangars, there are still planes which proudly bear the Swiss national flag on their tail. But the logo is redundant now and the planes are going nowhere.

A small trickle of people queue patiently at the Swissair desk. "For the moment, I'm stuck" says one woman, fanning herself with a crumpled Swissair ticket. "This might as well go in the bin. It's supposed to get me to Stockholm but its not even going to get me a refund. Swissair is bankrupt I've just been told; they can't compensate me."

The strain is beginning to show on the faces of the Swiss air staff. "Stop filming us," she shouts at a camera crew. "Can't you see we've had enough?" The staff are unsure whether they will have jobs tomorrow.

Job fears

Swissair has already announced that 2,560 jobs will be cut in light of its collapse, but there are estimates that up to 10,000 posts could be lost.

"I went to the check in desk really just to wish all the staff good luck in finding a new job," said a businessman trying to get back to London. It's inconvenient for me - I don't know where I'll be able to fly to in Britain at the moment or what time I'll be able to fly, but at least I'll have work to turn up to when I finally get back."

Outside the airport, an American lady is fighting back tears. Her son is graduating from college in New York and she needs to get to there by the end of the week. "I have a Swiss air ticket to fly later this week,"she says. "But they tell me there won't be any flights later this week. I need to see my son. But they just say they can't do anything."

It looks unlikely the American woman will get to New York with Swissair.

Fuel suppliers have refused to deliver kerosene to the Swissair fleet and foreign airports say unless they are paid prompt landing fees, Swissair planes will not be granted permission to land.

A few businessmen shout instructions to secretaries down their mobile phones: "Get me on any Rome flight if the London ones are all booked - I'll change at Fiumicino!"

But for those passengers without corporate connections and reserves, who are still hoping to fly Swissair tonight from Geneva airport, it is going to be a very long night.

National pride

But the demise of Swissair is more than just the end of an airline to the Swiss people, it is a big blow to national pride.

"Today Swiss people are waking up without their national company," says the Swiss daily newspaper, Le Temps. "We owe the last 50 years of Switzerland's economic expansion to this airline - now, just as the world heads for a recession, the spring breaks. It's the end of a dream," it adds.

In the Tribune de Geneve, the editorial says: "Swissair's pride is dead and Swiss pride has take a huge blow: It's catastrophic, both symbolically and economically."

Swiss reaction

In the streets of Geneva, everyone seems to be affected by the news.

Many say they cannot believe the 70-year-old company which epitomised quality and efficiency has declared itself bankrupt.

"It's disgraceful that this should have been allowed to happen," says one man who declined to be identified. "The bosses of Swissair were totally arrogant about their expansion plans. Thousands of people will lose their jobs now, but I bet the bosses on the board will all still walk away with their fat cat salaries."

Business fears

The news from Swissair has sparked alarm in the cosmopolitan city of Geneva.

"Its a disaster for those of us who work in international business," said a woman coming out of the PricewaterhouseCooper's office building. "This will have a huge impact on our long haul flights. Now there is no Swissair, we will have to take short flights to Paris or London and change."

"I'm due to fly Swissair to London next week," said her colleague. "I honestly don't know what the procedure will be now. Maybe they've already had to sell the plane I'm meant to board! What was the company playing at?"

Demanding answers

The Swiss newspapers have been asking the same question. They accept that last month's attacks in the US acted as a catalyst in the grounding of the Swissair fleet, but they want to know why no one saw this mess coming a long time ago?

"Let's hope we don`t forget to ask those responsible for this chaos to explain themselves," says the Tribune de Geneve. "Because it's unthinkable to imagine that someone can kill one of the symbols of a nation without being brought to justice."

-- Andre Weltman (aweltman@state.pa.us), October 03, 2001.