Swiss to Fly Under Lufthansa′s Wing | Business| Economy and finance news from a German perspective | DW | 23.03.2005
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Swiss to Fly Under Lufthansa's Wing

The German airline Lufthansa on Tuesday took over ailing Swiss International Air Lines after major shareholders in the Swiss carrier approved a deal worth up to 310 million euros ($409 million).


Swiss shareholders cast aside national pride to aid their airlines

Lufthansa and Swiss said in a joint statement that their boards had endorsed the agreement, which was to be signed by chief executives Wolfgang Mayrhuber and Christoph Franz in Zurich later in the evening.

The agreement was clinched after major Swiss shareholders, led by the Swiss government with its 20.4 percent stake, met Tuesday to approve the takeover by its bigger and healthier German rival.

With Swiss's financial horizon clouded by stiff competition and fuel prices, other key Swiss shareholders, including regional authorities, the Swiss banks UBS and Credit Suisse and Swiss blue chip groups such as Nestle, Novartis and Roche, also cast aside national pride to back the deal.

"As a member of the Lufthansa group, Swiss will be better placed to assume its role in linking Switzerland to the rest of the world over the long term," Franz said.

Swiss suffered after 2001 rescue package

Mayrhuber (photo) said Lufthansa's customers would benefit from more destinations, more connections, and improved service. "The merger of our two companies is not only positive

Wolfgang Mayrhuber

Lufthansa CEO Wolfgang Mayrhuber

for Switzerland and Germany but also for our partners in Star Alliance. It reinforces European air transport," he added.

Federal and local authorities along with Swiss businesses owned 86 percent of the airline, having investedy more than 2 billion Swiss francs ($1.7 billion, 1.28 billion euros) under a national rescue package put together after the former flag carrier Swissair went bankrupt in 2001.

Trading in the Swiss's shares was suspended on Tuesday at the company's request.

The airline's share price had closed at 9.6 Swiss francs Friday, equivalent to barely one tenth of its value when the airline was launched. Lufthansa said it expected to pay between 45 million and about 300 million euros for Swiss as the deal -- the full cost of which will depend on the German airline's share performance -- is gradually rolled out until 2008.

Deal made to save jobs

Switzerland's government said it had accepted Lufthansa's offer, even though it represented only a fraction of its investment, because other strategies would have put jobs at risk.

The Federal Council also insisted in a statement that it they would not have been able to afford forthcoming investments of several hundred million Swiss francs to upgrade equipment and aircraft.

Lufthansa and Swiss revealed publicly for the first time on March 14 that they were in "constructive" takeover talks, following months of speculation about secret meetings between company executives.

Swiss was plagued by heavy losses form the outset, but had managed to narrow them over the past year amid a massive restructuring drive that slashed one third of the company's staff and one third of its fleet.

After restructuring, more cuts ahead

Former Lufthansa executive Franz, who took over at Swiss in June 2004, announced more cuts this year as Swiss grappled with rising oil prices and struggled against budget competition in Europe.

He reiterated Tuesday that those cuts must go through to ensure Zurich's value as a hub to the new group. Franz warned earlier this month that operating results at Swiss were still unsatisfactory, urging staff unions to agree to a further 1,000 job cuts over the next 18 months and to renegotiate collective contract agreements by the end of 2005 to cut costs.

Executives at Swiss had staked the fledgling company's long-term survival on joining a major industry alliance as early as 2002. But a deal with British Airways on joining the Oneworld Alliance fell through one year ago, prompting the revival of simmering behind-the-scenes talks with its huge German rival.

A new dawn for older carriers

Analysts have predicted that the deal should speed up consolidation in the European airline industry as more older carriers join forces to compete against low-cost competition.

Swiss cut its consolidated net loss to 140 million Swiss francs (90 million euros, $118 million) in 2004, against 687 million Swiss francs a year earlier.

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