France may cost Swissair dear
Problems mounted for beleaguered Swissair on Friday when its shares fell sharply amid concerns that the troubled Swiss aviation group is likely to face higher costs to extricate itself from its unprofitable French operations.
Swissair’s stock slid as much as 10 per cent in morning trade in Zurich, before recovering to close SFr10.25 lower at SFr131.50.
The shares have slumped almost 50 per cent since Philippe Bruggisser, former chief executive, was ousted at the end of January over his disastrous strategy of buying minority stakes in unprofitable European airlines, including the French operations, AOM and Air Liberte, Belgian carrier Sabena and LTU, the German charter airline.
The slide on Friday halted a rally in recent weeks from an end-of-April low of SFr104 spurred by hopes that Swissair may yet find a buyer for the two French airlines.
Prospects of a sale faded this week, however, after the French management admitted it had found no serious bidders, raising doubts about the size of Swissair’s exposure.
The Swiss company has already been forced to negotiate a SFr1bn ($558m) credit line from a consortium of banks as it struggles under debts of SFr6.5bn, amassed during Mr Bruggisser’s shopping spree.
Unless Mario Corti, the ex-Nestle finance chief who was drafted in less than three months ago to rescue Switzerland’s national airline, can quickly stem Swissair’s open-ended financial commitments, Swissair itself could face bankruptcy.
Market sentiment was undermined after a warning from ABN Amro that investors should not expect a rapid turn around. The investment bank reiterated its sell recommendation on Swissair and downgraded its six-month share price target from SFr90 to SFr70.
Damien Horth, ABN’s airline analyst, forecast losses from associates this year of SFr745m, before any provisions. He argued that Swissair would struggle to carry through its threat to push its French operations into bankruptcy by cutting all financing at the end of June.
“Given the rigid nature of the French labour market and the power of the union movement, it is unclear that closure is possible,” Mr Horth said. The French government this week increased the pressure on Swissair and its French partner, Marine-Wendel to bail out the French airlines, which employ more than 6,000 people.
Chris Avery, airline analyst at JP Morgan said the combination of factors had undermined fragile investor confidence. “The ABN note coincided with the fundamental piece of news that the previous two weeks rally [in Swissair’s shares] was based on the false premise that AOM-Air Liberte could be sold,” he said.
Mr Horth estimates that on top of funding the additional losses this year at the French operations of some SFr480m, Swissair would have to make a provision of SFr873m to close the business.
The impact of the ABN research note on Swissair’s shares comes only days after the same investment bank sent the shares of Railtrack, the ailing UK rail infrastructure owner, into free fall after a hard-hitting analysis of the company’s valuation.
Financial Times
