Swissair to sell SFr3bn of non-core assets to reduce debt Swissair to sell SFr3bn of non-core assets to reduce debt
Swissair, the struggling Swiss aviation group, plans to raise SFr3bn ($1.7bn) through the sale of non-core assets over the next 18 months in a bid to reduce a SFr7.8bn debt burden which threatens to bankrupt one of the world’s proudest airline brand names.
But Mario Corti, the ex-Nestle finance chief brought in to rescue the group in April, ruled out any immediate need for an equity issue, sending the company’s shares up almost 13 per cent to SFr103.50 in Thursday trade.
Mr Corti has ditched the ambitious expansion strategy inherited from the previous discredited management, whose investment in loss-making airline affiliates led to Swissair’s quoted debt being given a “junk bond” credit rating last month.
Despite the sale of SFr900m of non-core assets this year, Swissair’s net debt rose SFr1bn in the first six months as it was forced to continue to pump money into loss-making airline investments.
The decision not to raise fresh equity means Swissair’s financial position remains precarious, although Mr Corti insisted the group had “sufficient cash resources and banking facilities” to support the business going forward. He forecast an 18 per cent increase in full year operating profits compared to last year, before expectional items, after a flat first half.
“We are walking a tightrope but it is not a good strategy to raise equity at any price,” said Mr Corti. The shares have slumped more than 60 per cent since the start of the year.
Under a new plan, unveiled in Zurich on Thursday, the new strategy will focus on the core operations: Swissair and Crossair, the group’s two Swiss airlines, Gate Gourmet, the world’s number two airline caterer, and Nuance, the world’s biggest airport retailer.
Mr Corti will retain the fiercely independent Crossair as a separate brand but will co-ordinate the business much more closely with Swissair as capacity is cut to focus on high yielding business traffic and reduce dependency on transfer traffic.
The group is looking to cut its workforce by 5 per cent in the first year, largely through natural attrition, as part of a drive to find annual savings of SFr250m by 2003.
Swissair has already sold off its hotel chain and on Thursday announced plans to merge Atraxis, its information technology business, with Lufthansa’s software systems business, and swap Rail Gourmet, and several other small catering businesses, for the airline catering operations of Compass, the UK food services group.
The group will also continue to raise cash with property disposals and through the sale and leaseback of most of the 115 aircraft owned by its Flightlease aircraft leasing company, which is being wound down.
Mr Corti’s efforts to stabilise the extremely stretched finances of a group, which lost SFr2.9bn last year, has been severely hampered by the downturn in the airline market and the group’s unquantified liabilities due to its exposure to minority participations in Sabena, Belgium’s flag carrier, several French airlines, and LTU, a German tour operator.
Swissair has had some success in plugging the financial holes inherited from the former management. It has halted its SFr160m a year of funding to France’s Air Littoral and the SFr800m a year to AOM/Air Liberte’.
However, it is not clear whether it will be forced to contribute more money than it has already set aside to sort out the problems of AOM/Air Liberte’, which has filed for bankruptcy, and Sabena, where it is being sued separately by both the airline and its majority owner, the Belgian government, after reneging on an earlier committment to take full control.
Mr Corti insisted that the exit costs from the French airlines were covered by the provisions made earlier this year but admitted the situation at Sabena was still fluid.
Swissair’s first priority remains to stop the haemorrhaging of a balance sheet where just SFr1.2bn of equity supports assets of SFr20.2bn.
The group has so far managed to av