Sale of LTU stake lets Swissair off the hook

Swissair, the embattled Swiss flag carrier, has agreed the sale of its 49.9 per cent stake in LTU, the German charter airline, for a symbolic E1 in a move that allows it to avoid honouring a financial commitment that could have cost it up to SFr1.3bn ($785m).

Last week the state savings bank of Dusseldorf announced that it would take over Swissair’s 49.9 per cent stake in LTU in a government-orchestrated bail-out that has been heavily criticised by Lufthansa, Germany’s national airline, which competes with LTU through its stake in Condor, a rival charter airline.

LTU is the last of several costly investments that forced Swissair Group to seek protection from its creditors last month. By taking minority stakes in lossmaking European Union carriers, Swissair had hoped to build a pan-European aviation group that could rival British Airways, Air France and Lufthansa.

Swissair had already severed its minority ties with Sabena, the Belgian carrier, and AOM and Air Liberte, two regional French airlines, before it was forced to file for protection from its creditors last month.

The revelation of the potential losses faced at LTU underlines the inevitability of last month’s collapse of an airline which used to have one of the soundest balance sheets of any European operator.

Karl Wuthrich, the provisional administrator who is preparing to wind up the Swissair Group, estimated it would cost SFr500m-SFr700m to extricate the group from its financial commitment to bear LTU’s entire financial risk until the end of 2005. By striking a deal, Swissair has avoided estimated losses of up to SFr1.3bn on its contractual obligations to LTU.

As part of the deal, all mutual claims will be renounced except the guarantees that SAirGroup (Swissair’s legal name) had issued to third parties, especially lessors, for the aircraft leased by LTU.

Switzerland’s efforts to rebuild a new national airline from the remnants of Swissair took another step forward over the weekend when both chambers of the Swiss parliament approved a public sector rescue package of more than SFr2bn.

The plan, known as Project Phoenix, had been heavily criticised as a waste of money by some Swiss politicians, led by Christoph Blocher, the country’s leading populist politician.
ft.com
Financial Tims