Swissair bankruptcy spells trouble for sector

Swissair, once one of Switzerland’s most respected companies, has filed for bankruptcy in a move that could trigger a series of financial crises among other European airlines.

Swissair hopes to continue flying for the next few days but its decision to seek a “moratorium” on a large part of its SFr17bn ($10.5bn) debt is likely to lead to its operations being severely disrupted, as angry creditors seek to have its aircraft seized. The Zurich-based group is the biggest victim to date of the crisis that has swept the airline industry since the terrorist attacks in the US three weeks ago.

The company’s effective bankruptcy brings to an end a 70-year-old airline that came to epitomise the best of Switzerland – first class service, financial solidity and punctuality. It is Switzerland’s best known corporate brand.

Swissair is the first flag carrier in Europe to hit serious financial trouble, although Sabena, the Belgian national airline in which Swissair still holds a 49 per cent stake, is close to a similar fate.

Swissair has applied for a “moratorium of debt enforcement” for SAirGroup, its parent company, SAirLines, its airline division, and Flightlease, the group’s leasing operation.

UBS and Credit Suisse, Switzerland’s two biggest banks, on Monday launched a SFr1bn rescue package to recapitalise Crossair, Swissair’s regional European airline, which will take over all of the profitable Swissair routes in a bid to ensure that Switzerland maintains a national airline.

The two banks are paying SFr260m for Swissair’s 70 per cent stake in Crossair and will provide Crossair with SFr500m of working capital. They will also underwrite a SFr350m capital increase.

While the banks offered the Swiss government and the states a chance to subscribe up to 30 per cent of Crossair’s share capital, the government said late on Monday that it would not buy shares or provide cash to Crossair.

The banks are also offering a SFr250m standby facility to SAirLines, Swissair’s airline operation.

The restructuring will result in the loss of 2,560 jobs out of Swissair’s 7,300 staff, and Gate Gourmet, the airline catering operations, together with other profitable Swissair operations will now be put up for sale.

Financial Times