Swissair, Gone with the Wind...

By Jeremiah Teahan January 27, 2002

Once one of the world's great airlines, Swissair is no more. On October 2, 2001, dozens of aircraft stood grounded at Zurich Unique Airport. Flights could not take off due to the simple lack of cash flow.

So little was available that there wasn't enough money to pay for jet fuel.

No, we are not talking about a young airline in a developing country; we are talking about the airline which flew the flag and the pride of the people of one of the richest countries in the world, Switzerland. The airline was, of course, Swissair. Many people were aware that Swissair was ill, maybe even very ill, but no one ever thought it could reach this level of gross humiliation. Passengers were left stranded with valueless tickets; 70 years of the Swissair brand's goodwill were gone in a matter of hours. With this article, I hope to give you an idea on what led to the end of Swissair.

Despite being based in a small, landlocked country and never receiving any state subsidy, Swissair always managed to establish itself as a quality global airline. Celebrating it's 70th birthday in March of this year, no one could have guessed the drama which was going to unfold in early October, the drama that was going to shut it down and put the world famous Swissair brand to rest.

The Swissair story started in March 1931 when shareholders from the two main Swiss airlines at the time, Ad Astra-Aero and Balair, approved the merger of both those carriers to form Swissair. At the time the airline's 13 aircraft and 64 employees flew 4 domestic and 14 European destinations, all from Zurich. Over time, the airline grew slowly, operating such aircraft as the Douglas DC-4, Sud Aviation Caravelle, Convair CV-990 Coronado, DC-8, DC-9, DC-10, MD-11, B747-300. More recently, Swissair began converting to an all Airbus fleet, with the 3 members of the A320 family and the A330-200 providing most services. The A340-600 would have replaced the MD-11 between

2002 and 2006. Swissair grew from its 18 initial routes to a varied and strong network encompassing most of Europe and numerous long haul destination, including Taipei, Ho Chi Minh City, Manila, Osaka, Johannesburg, Santiago de Chile and Rio de Janeiro, just to mention a few of the more exotic locales.

Through the years, Swissair was always a true innovator in every aspect of the airline business, from fleet decisions to catering. In

1934, the first European air hostesses were employed by Swissair; in

1958 the first ever alliance was forged (with SAS Scandinavian Airlines); in 1968 Swissair became the third European carrier to operate an all-jet fleet; in 1988 the withdrawal of DC-9s made Swissair the world's first airline with an all Category-III fleet equipped for low visibility landings; in 1991 they were the world's first airline to publish an environmental-impact report; in

1996 Swissair was the world's first airline to operate A319s, A320s and A321s concurrently; and in 1999 they became the first airline to serve organic food in all classes on flights out of Switzerland.

Innovations were not to be the only element that made Swissair what it was; acting conservatively also played a role. Swissair was the last European airline to change from 8 to 9 abreast in the economy of their DC-10 aircraft, and from 9 to 10 in abreast in economy on their Boeing

747 aircraft. Another example is the metal cutlery in Swissair economy, an element that belonged to the past on most other airlines. Such outstanding service, with an appropriate balance of innovation and conservatism, earned Swissair worldwide acclaim.

With all its successes, Swissair also had its fair share of problems. Despite having one of the best safety records in the industry, like most airlines it suffered a number of accidents and incidents. The most recent and worst one, following nearly 20 incident-free years, was the 1998 crash of SR-111, a McDonnell Douglas MD-11 (HB-IWF), lost in the Atlantic Ocean off the coast of Nova Scotia while en-route from New York to Geneva. All

215 passengers and 14 crew perished. For many, that was the blackest day in Swissair's history, but nothing could have ever prepared anyone for what was going to unfold in October this year.

The end of Swissair was certainly not an overnight process. It followed years of poor decisions, made by arguably incompetent and mostly absentee managers who had little experience in the air transport industry. Since the mid-1990s, the airline's management decided to go ahead with an impressive expansion plan. It should have helped everyone: helped Swissair to remain strong and independent outside the major alliances that were about to be created, and would have helped the smaller, money-losing airlines that would, it was assumed, return to profitability by using the "proven" Swissair formula for success.

Swissair bought into a large number of overseas airlines, including Delta Air Lines and Singapore Airlines, but the main thrust of its expansion plans were met by large stakes in a number of European carriers, such as Sabena, AOM, Air Liberte, Air Littoral, Austrian, Volare, the German charter company LTU, Air Europe, LOT Polish Airlines, TAP Air Portugal and Turkish Airlines, just to name a small few. Swissair created an alliance of smaller carriers that could compete with the bigger alliances, such as OneWorld and the Star Alliance. Hence, the Qualiflyer Group was born, but so too was the financial troubles that eventually led to the demise of Swissair.

The vast majority of the Qualiflyer Group Airlines had major financial problems. For example, Sabena had made a profit only once in its long history. Nevertheless, once it became obvious the Swissair formula did not work at other airlines, the company's managers continued to spend money on their purchases, including a promise to take 36% more of perennial financially disabled Sabena, on top of the 49% they already had. On January

23, 2001 the first sign that Swissair was in serious trouble came from the man who pushed the formation of the Qualiflyer alliance and Swissair's disastrous expansion plan.

On that day, Philippe Bruggisser, Swissair's CEO, resigned. He had led Swissair's expansion, transforming the airline from being a relatively conservative but profitable European airline to being the centre of an ill-conceived alliance. Eric Honegger and Moritz Suter (the Chief Executive Officer of Crossair, the highly successful regional subsidiary of Swissair)

replaced him.

February 1 was the date when the first steps were taken to save the ailing company. It was announced that Swissair would not take a 34% stake in TAP Air Portugal that had been planned by Bruggisser. Then, on February 2, the same was said for the 51% of Turkish Airlines that was reserved for Swissair. On the 23rd, Swissair invested ?240 Million to save Sabena because without the "bridge financing" the Belgian company would be grounded.

In March, the Swissair revitalisation plan suffered its first real setback.

On March 7, Moritz Suter, who many called "The Swissair lifesaver", left the airline, claiming that the structure of the Swissair Group would not allow him to restructure Swissair in any meaningful way. Two days later the board of managers also resigned. On March 12, the government announced that it would not offer state aid to Swissair under any circumstances, a decision which came as little surprise to many.

On March 16, Swissair set course with a new Chief Executive Officer, Mario Corti, or as some people affectionately nicknamed him "Super Mario." Many believed that the Swiss-Italian Corti, previously the financial director of the Swiss food company, Nestle, would change everything. The Swiss people were assured that Swissair would be profitable within 5 years. Several cost saving initiatives were launched, including an internal magazine called "Voice", in which employees could contribute cost saving measures. March

26 saw Swissair celebrating the company's 70th birthday. No one realised that it would be their last.

While Corti tried to resuscitate moribund Swissair, the airline's shares continued a downward spiral, which was initially set off by former CEO Sutter's resignation. Group shares plunged as low as 201 Swiss Francs, very near the previous lowest-ever level of 197 Swiss Francs. To prevent dumping of the devalued stock, Swiss authorities blocked trading of Swissair shares the day the airline announced it's dismal 2000 results. The day after the release of the financial statement, shares plummeted even further, down to 139 Swiss Francs. But these figures pale in comparison to the price of Swissair shares as the end approached. Just before the airline collapsed, once-mighty Swissair had almost no stockholder equity left; the carrier's once valuable shares reduced to penny stock status.

April's arrival didn't bring better news for the Swissair Group. Sabena, Swissair's loss-making Belgian affiliate, announced a loss of SF497 million on April 3. Despite this crushing loss, Sabena CEO Christoph Müller attempted to find some silver in an otherwise very dark cloud. Müller said that the maximum possible financial loss had been reached and that from now on "things could only get better." His assertion was backed-up by an ambitious cost-cutting plan called "Blue Sky."

Despite Swissair's many troubles, the carrier's in-flight product was still receiving accolades. April's disastrous financial results were somewhat offset by the presentation of two "World Travel Awards" to Swissair; one for the "Best Economy Class Worldwide" and the other for "Best European Airline." Swissair also secured the sale of its award winning chain of hotels, Swissôtel, to the Raffles Hotel Group for a potentially life-saving SF520 million.

May started with a promise by Mario Corti that he would do his best to bring Swissair through the crisis without any job losses. After selling Swissôtel, he would also sell Swissair's computer branch, Atraxis, and Swissair's

10% stake in the Austrian Airlines Group (AUA). The future of Swissair's leasing branch, Flightlease, was under consideration. That month had its brighter moments, too. Although the airline likely had a "lock" on the designation, Swissair was nominated the official carrier of the International Olympic Committee. Despite the fact that the Swiss carrier's future was bleak at best, the IOC pledged to fly the Swiss carrier until 2004, with an option to extend the contract to 2008. Swissair painted one of their aircraft, an Airbus A321 (HB-IOC, named Lausanne where the IOC are based) with the Olympic rings. May ended with Swissair pilots accepting a 5% pay cut for 2 years.

Little happened in the June, except for an announcement by Mario Corti that Swissair would have to save SF500 million before the year's end if the company hoped to survive. On June 21, Swissair shares dipped under 100 Swiss Francs, their lowest-ever level. Even less happened in July and August, minus a major shock at the end of August, when Swissair said it would sell its duty-free arm, Nuance, and also eighty percent of its ground handling company, Swissport.

September started bad and became disastrous following the attacks on September 11. Like its competitors world-wide, Swissair asked for state aid and then announced that the airline was close to bankruptcy. Only drastic changes and an infusion of funds would save the storied Swiss airline from collapse.

Corti announced a major restructuring plan on September 24. Swissair and Crossair would merge, creating a new entity called Swiss Air Lines, while at the same time maintaining each airline's individual brand. Thousands of jobs would be lost in the consolidation, including 3000 at Swissair's catering company, Gate Gourmet. Swissair and Crossair's short haul network would merge and Swissair's long haul network would be cut by twenty-five percent.

Representatives from Swissair and Crossair announced that Swiss Air Lines would use the lower-cost Crossair structure, while maintaining Swissair's high quality. Hence, the best of both worlds. On the same day, the Swiss government announced that they would cover the increased war insurance premiums for Swissair and Crossair. Without this provision, Swissair and Crossair would probably have faced certain grounding. On September 28, despite the news only a few days earlier that both companies would merge, the real beginning of the end began. Swissair shares went down to a little under 39 Swiss Francs. On the following day, October 1, Mario Corti announced the unbelievable: Swissair, the pride of Switzerland, was bankrupt.

The two main Swiss banks and Swissair's major creditors, UBS and Credit Suisse, would take over Swissair's share in Crossair, and Crossair would then take over Swissair flights. Some 2650 jobs would be lost, including 1750 in Switzerland. The following day, at 15:45 Central European Time, all Swissair flights were suspended because Swissair did not have any cash to pay for fuel. The only flights to take-off were aircraft abroad, allowing them to return to Switzerland. A journalist from a Swiss-French newspaper famously wrote "La Suisse n'est plus la Suisse," translated as, "Switzerland isn't Switzerland anymore." Nothing could be closer to the truth. Few people abroad could ever realise the impact that Swissair had on the Swiss people, that Swissair to the Swiss was more than just an airline. It carried the Swiss flag on the tail and along with it the values and beliefs of all the Swiss people. The wings of Switzerland were clipped.

It was only with help of the previously recalcitrant Swiss Government that Swissair operations re-started on October 4. The Swiss Confederation agreed to provide Swissair with ?300 Million of bridging money to allow the airline to fly until midnight, October 27.

What happened to some of the other airlines involved in the Qualiflyer Group? Despite a steel will and great dedication by the airline's employees, Sabena ceased operations on November 7. The last ever Sabena flight was from Abidjan and Cotonou in Africa to Brussels, operated by A340-300, OO-SCZ.

In the following days, there were mass protests by employees at Brussels Zaventem airport, who could not come to realise that the long and sometimes painful relationship with their company was over. But with the help of government money, Sabena's regional subsidiary DAT restarted flying on key routes from Brussels on November 10, using their fleet of regional jets, with plans to add eight ex-Sabena Airbus A319 aircraft later. Sadly, DAT is in deep financial trouble and are having problems finding investors. The future of Belgian aviation is not guaranteed.

The future of AOM & Air Liberte looks a little brighter. After merging and filing for bankruptcy, they restructured themselves, then re-branded under the name "Air Lib." The new name was chosen through a telephone survey among frequent AOM and Air Liberte customers. Although Air Lib is still making loses, they aim to return to profit within two years. They are also launching a new route to Algeria in co-operation with their long time rival, Air France.

On the October 8, the real job of creating the new Crossair started. Mario Corti announced the loss of 9000 jobs in the Swissair Group worldwide, including 2600 jobs in its airline activities. Some unions estimated that total job losses at Swissair and its suppliers could top an incredible 170000. On the 14th, a task force set up by the Swiss Parliament spoke in favour of transforming Crossair into an international airline, taking up twenty-six long haul aircraft and twenty-six short haul aircraft from Swissair's fleet. In Crossair's corporate offices, three options were being considered, including one where no Swissair aircraft would be taken up. Whichever plan came to fruition, the new Crossair would need SF4 billion in start-up funding.

On October 17, the Swiss Parliament announced that it was willing to give money to the new company, as long as businesses and Cantons [Swiss states] would be willing to do likewise. Finally, on the 22nd , the Swiss Parliament gave their official green light to the project. The Swiss government would control 20% of the new company, the Cantons 18% and the private sector 62% of new airline.

Despite this progress, the future of the new company is certainly not sealed yet. Management has to make many decisions and overcome many challenges, not the least of which are crushing debts, leery financiers and disgruntled employees. These decisions are not made any easier by the state of the world economy, nor was management helped by the loss of a Crossair RJ-100 (HB-IXM)

and twenty-five people on November 24. Crashes are always terrible, but this one particularly as it could not have come at a worse time. This tragedy will undoubtedly put into question plans to use the Crossair brand name. Perhaps an extra effort will be made to use Swissair, or maybe even an entirely new brand?

One thing for certain is the ill-conceived Qualiflyer Group is dead.

Several years late, and with hat in hand, the new Swissair/Crossair is looking for an alliance to join. Many believe the most likely choice will be Oneworld, which includes British Airways, American Airlines, Cathay Pacific and Aer Lingus. Other options include the Star Alliance, with United Airlines, Lufthansa, Air Canada and Singapore Airlines anchoring that, the largest, international alliance, and the Wings Alliance with KLM Royal Dutch Airlines and Northwest. Some analysts wonder what assets a smaller Swissair/Crossair can bring to the now well established alliances.

However, the greatest challenge facing the new Crossair is its long-term survival. At a time when many analysts believe the future is made only for so-called "mega-carriers" (which Swissair aspired to be, but the new Crossair will never be), it is ironic that the latest round of airline problems sees carriers cutting their size as fast as possible.

One thing is sure; the father of Crossair, Moritz Suter, won't join the management of the new airline. During a meeting on December 6, close to tears, Suter announced that he was leaving Crossair. It is the end of his long career in aviation, which started when he got a job as a Luxair pilot in 1965. Following that, he joined Swissair, flying the DC-9, in 1974.

Only one year later founded "Business Flyers Basel", which then became Crossair in 1979. Even though he is leaving, he promised he would be available if the new Swiss airline ever needed him.

The clock can't be turned back. Swissair is finished and now we can only look forward with hope. No one doubts that the new company will provide good service to Switzerland. However, what many do doubt is if the new airline can possibly gain the admiration and respect Swissair gained from every Swiss person over the past 70 years. No matter what happens, Swissair will always be remembered in the hearts of many, including this writer, as the world airline of its time. Not overly big but definitely setting the world standard. On no other airline would you get the little extra that simply made you love the company, the little extra that changed everything. In particular, the dedication of employees deserves a mention. These people didn't just consider Swissair as their job; they considered it as a way of life, and that there were part of a family. They took the Swissair spirit everywhere they went, representing their company with pride and dedication.

But all things come to an end sometime, and Swissair came to that end far earlier than anyone could or would have predicted. Had it not been for mismanagement, Swissair would surely still be flying in seventy years time.

On March 31, 2002 the last official symbol that one is flying Swissair will go: the "SR" flight number prefix will be used for the last time, being replaced with "LX", the code for Crossair. Swissair then will only be a part of history; Swissair will be Gone with the Wind.

to Swissair 111