Zurich - Switzerland's now-bankrupt former national airline Swissair knowingly bypassed European law by taking effective control of several airlines such as AOM, Air Liberte and Sabena, a report ordered by the liquidator revealed on Friday.

Ancillo Canepa, of auditors Ernst and Young, told a press conference Swissair had "formally respected" European Union rules while "de facto" circumventing them.

Swissair wanted total control of the airlines but as a non-EU company, it was only permitted to hold 49.9% of their capital.

Contracts were signed respecting this limit, but thanks to a complex system of portage solutions, guarantee commitments and non-transparent financing, Swissair "assumed the full financial and commercial risk", Canepa said.

"The full consolidation of significant subsidiaries which would have been necessary was not performed as it would have resulted in making public disclosure of the existence of effective control," the report said.

Swissair decided in the 1990s, with approval of its board of directors, to try to become Europe's fourth biggest airline.

The company made more than nine acquisitions in a number of years.

Between 1995 and 2001, it paid out Sf15.9bn for acquisitions and various recapitalisations even though in principle the board had set a Sf1300m maximum.

However, the auditors did not find any irregularities in the accounts for 1999 and 2000, Ernst and Young said.

Despite a report by McKinsey in August 2000 showing a capital shortage of between Sf13.2-4.4bn, the board took no action.

Philipp Bruggisser, chief executive, was sacked from the airline in early 2001 and Mario Corti, formerly of Nestle, took over, but it was too late to alter the airline's fortunes.

In October 2001, Swissair filed for bankruptcy.

The 5 000-page Ernst and Young report was ordered to try to find who was responsible for the collapse.

Reacting to the report, Bruggisser on Friday said that he had always done his best for Swissair and had been convinced that he was doing the right thing for the company.

"That it turned out differently, I really regret," he said in a written statement sent to AFP.

He said the "hunter strategy", criticised by the report, had been regularly checked by the management and board of directors and adapted to the changing market conditions.

Regarding participations in other airlines, Bruggisser said EU commisioners in charge of transport and competition had been informed and had authorised them.

"We have therefore always behaved in conformity with EU law," he said. - Sapa-AFP