Swiss newspapers reacted with dismay on Thursday to growing evidence that dubious accounting methods were used at the former national airline Swissair in the years up to its spectacular financial collapse in 2001.

As the WorldCom accounting scandal broke in the United States, Swissair administrator Karl Wuthrich revealed to creditors late on Wednesday that an investigation had disclosed that Swissair Group (SAirGroup) accounts had not shown the full extent of its financial dealings.

He highlighted "three problem areas" emerging in the investigation, which is due to be completed by auditing firm Ernst and Young in the autumn.

Problem areas

The three areas: the extent of Swissair's holdings in foreign airlines, the use of trustee shareholders to bypass European Union restrictions on non-EU ownership when Swissair acquired French regional airline Air Littoral in 1999, and a complex series of equity swaps between 1999 and 2001.

Wuthrich also noted "gaps" in Swissair documentation and said the company's former auditors, PricewaterhouseCoopers and KPMG, had so far "not felt able to grant the administrator access to their audit records."

With the issue likely to grow in importance as the probe continues, according to Wuthrich, Swiss newspapers underlined that key figures in the economic establishment were involved in running the former national airline.

Execs, board members under pressure

Noting a "whiff of Enron," the daily Le Temps on Thursday warned that former Swissair executives and board members would now be under intense pressure.

"One must have been blind or sly not to have noticed the gaping holes in the SAirGroup empire, well before March 2001," Le Temps commented.

"Trickery was allied with juggling to mask the state of the company. That the then auditors are today denying the administrator access to their archives says a great deal about their good conscience," it added.

Swiss prosecutors conducting a separate investigation last week ordered a search of the offices of PricewaterhouseCoopers in Zurich and the home of the chairman and chief excutive of Credit Suisse Group, Lukas Muhlemann, a former Swissair board member.

"Although he is not directly charged, the head of Credit Suisse Group Lukas Muehlemann is under the spotlight, along with other members of the board" the Basler Zeitung said.

"A bank, whether it's currently Credit Suisse Group or another, can hardly afford to have something to do with a chief that, probably consciously, was involved in cheating," the Basel newspaper added.

The Neue Zurcher Zeitung said there was evidence of "crooked" dealings at Swissair.

Bankruptcy protection

The airline, a one-time symbol of Swiss efficiency, sought bankruptcy protection in October 2001 following its spectacular financial collapse.

It officially disappeared at the end of March 2002, replaced by a new carrier known as Swiss that was set up around Swissair's regional operator Crossair with a controversial 2.7-billion Swiss franc aid package, including about one billion francs in public money.

Wuthrich, who outlined the intermediate findings of his investigation during a creditors' meeting in Zurich, is dealing with 38-billion Swiss francs (?26-billion) in demands from creditors.

AFP

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