Friday, September 30, 2011

Swissair collapse still reverberates

The grounding of national carrier Swissair ten years ago sent shock-waves through Switzerland, and across the country there were calls for heads to roll.

But neither the board nor the airline’s management have been found guilty of mismanagement, even though claims worth SFr3 billion are still pending against them.

The months before the grounding were chaotic. The drama had been slowly unfolding, but nobody really believed that the company would suffer a fatal blow.

However on the afternoon of October 2, 2001, Swissair’s planes were grounded. The once-proud national carrier no longer had enough money in the till to pay airport taxes or buy kerosene for its aircraft.

Around 39,000 passengers suddenly found themselves hostages of the situation. The damage to Switzerland’s reputation was huge. Even today those in charge of the company at the time still blame each other for the debacle.

"In the case of UBS [bank], everything was done to save the group as a whole, while in the case of Swissair nothing was done at the decisive moment,” the last Swissair chief, Mario Corti, said in a recent television program.

Corti criticises the major banks and the government for not preventing Swissair’s insolvency. But his opponents say Corti, and the board as a whole, did not have an overview of the whole affair.

"It was clear from the start that any help for the old Swissair would come too late,” said Marcel Ospel, who was then the chief executive of UBS, shortly after the grounding.

Lessons from the debacle

At the time, the notion of "too big to fail" didn’t exist. Seven years later, in autumn 2008, the cabinet used an emergency law to come to the aid of the tottering UBS bank, with a loan of more than SFr6 billion, saving it from bankruptcy and saving Switzerland’s reputation as a financial centre.

Had it not been for the grounding of Swissair, things might have worked out differently.

“I knew that in this sort of crisis situation I had to contact the finance ministry in time,” Peter Kurer, who was chairman of the UBS at the time, told the newspaper NZZ am Sonntag.

“When things got really tight, all the relevant ministers were constantly kept up to date with the information they needed.”

When UBS refused to give Swissair the credit it needed in autumn 2001, Kurer was UBS’s chief legal officer and played a decisive role in the negotiations.

Debts and profits

On October 2, 2001 pictures of the stranded aircraft appeared all round the world. The "flying bank", as Swissair was proudly nicknamed for its high liquidity, high returns, the excellent reputation of its core activity and well regarded catering and duty-free businesses, had bitten the dust.

The next day the cabinet did what it had refused to do two days earlier, providing an emergency credit of SFr450 million and giving Swissair the money it needed to get off the ground again.

Facing a SFr17 billion financial hole, the SAirGroup subsequently filed with the courts for a moratorium so it could restructure its debt. Swissair had to be pared down.

After a merger with the regional airline Crossair, the successor company Swiss started operations on March 31, 2002. Together the federal authorities and the banks pumped more than SFr3 billion into the complicated and confused restructuring of the enterprise, including SFr1.7 billion of taxpayers’ money.

Even so, Swiss was never able to reach the heights it was aiming for. There was too much turbulence, and the economic environment was too unstable.

When it was taken over by Germany’s Lufthansa in spring 2005, the company was worth just SFr340 million.

But now as a subsidiary, it is making healthy profits for its German owners.

Claims still open

The story is not yet over for the former board members and management of Swissair. A claim for damages worth a total of SFr3 billion from the Swissair liquidator Karl Wüthrich is still pending against them.

It is not currently clear whether the officials might have to pay those damages from their own private assets or not. Wüthrich himself says it is also open whether the claim will be dealt with in court, or whether there will be a settlement beforehand.

Criminal proceedings came to an end more than four years ago. In June 2007 the regional court in Bülach acquitted all 19 accused – including a considerable number of major Swiss business figures – of all charges.

A result that both the public and the plaintiffs interpreted as meaning that under Swiss law, bad decisions and mismanagement would never be punished.

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