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Swissair - "The Flying Bank"
by Marie-Noelle Blessig and Peter Capella
Sat Jan 13, 11:16 PM ET

ZURICH (AFP) - Former executives of Swissair and leading lights in Switzerland's financial establishment will go on trial for their role in the spectacular collapse of an airline that was once a watchword for excellence.


After plying the world's skies for 70 years, Swissair, a symbol of the country's legendary efficiency, was unexpectedly grounded on October 2, 2001 when the carrier was unable to pay its fuel bills.

Hundreds of passengers and aircrew were stranded around the world until emergency bridging loans and government guarantees helped the private company resume flights.

Some pilots nonetheless had to pay cash for jet fuel at foreign airports. The airline was eventually stripped of its assets and slid into bankruptcy within six months.

The 19 Swissair ex-managers or board members due to appear in the dock near Zurich until March include a former chief executive of the bank Credit Suisse, Lukas Muehlemann; Benedict Hentsch, the ex-head of the eponymous Swiss private bank; industrialist Thomas Schmidheiny and former Swissair chief executive Philippe Bruggisser.

The affair was even turned into a movie, "Grounding", that became a box office hit in Switzerland last year. The film was credited with reviving the fortunes of the country's cottage film industry with its portrayal of some top name Swiss financiers as alternatively sharkish or incompetent.

Swiss business law professor Walter Stoffel said the judge faced the tricky task of applying appropriate judicial redress without stifling the entrepreneurial spirit needed in a free market.

"If the court stigmatises the undertaking of entrepreneurial risk, it would be disastrous for our business and economy," Stoffel told the Tages-Anzeiger newspaper. "Personal failure is not a criminal offence."

The Zurich cantonal prosecutor's 100-page charge sheet includes accusations of false accounting and unlawful management against some of the defendants, focusing mainly on attempts to restructure the parent company in 2001.

At the time Swissair Group had racked up some 17 billion Swiss francs (11 billion euros) in debt, including an excess of 2.3 billion Swiss francs on the airline business alone, which is at the centre of the prosecutor's case.

In the years running up to the collapse, Swissair had appeared to be bursting with ambition as management embarked on what was dubbed a "hunter strategy", buying or taking substantial minority stakes in smaller carriers after struggling to conclude tie-ups with major airlines like KLM in the Netherlands or US carrier Delta.

Belgium's Sabena; French airlines AOM, Air Liberte and Air Littoral; Austrian Airlines; Volare; the German charter company LTU; Air Europe; Poland's LOT; TAP Air Portugal and Turkish Airlines came under Swissair's wing to varying degrees.

Some of them were also dragged under after the Swiss company's financial troubles started to emerge. Bruggisser was forced to resign in January 2001, well before the carrier was grounded, when part of his strategy was disavowed by the board.

Bruggisser, who only last year was seeking a place on the board of South African Airways, will precede his successor, Mario Corti, in the village hall in the small town of Buelach, on the outskirts of Zurich, where the trial is to take place.

Corti, a respected former Nestle executive, negotiated a 12-million-Swiss-franc fee for five years to try to turn the airline group around in 2001, when it was already making huge losses and was riddled with debt.

In the event Corti stayed in the post for less than two years.

Other key defendants include ex-LOT chief executive Jan Litwinski and executives who handled Swissair's finances in 2001.

Legal expert Daniel Jositsch said the case was unlikely to produce any prison sentences.

"No one will end up behind bars," the Zurich law professor said.

"Bad business administration is not punishable, and you'll need to prove that there were shortcomings in due diligence."

Swissair's aircraft and staff were merged with regional airline Crossair in 2002 under a 4.5-billion-Swiss-franc national salvage plan footed by the Swiss taxpayer and major banks.

The end product, Swiss International Airlines, was taken over by Germany's Lufthansa in 2005, after successive restructurings.

This message has been edited. Last edited by: BF,
Posts: 2568 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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I bet it must be somewhat satisfying Barb, to see these guys be made to pay, even if it is in a small way. I know true justice can never be dispensed, but still.

"Those Who Don't Learn From The Past Are Doomed To Repeat It."
Posts: 181 | Registered: Sun July 09 2006Reply With QuoteReport This Post
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You're so right Murray. It's just too bad that it's always about the money.
Posts: 2568 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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Swissair, Biggest National Bankruptcy, Goes on Trial (Update1)

By Joseph Heaven

Jan. 16 (Bloomberg) -- Board members who oversaw the 17 billion-franc ($13.6 billion) bankruptcy of Swissair Group stand trial today on charges related to the carrier's collapse, Switzerland's biggest corporate failure.

Gerhardt Fischer, a former member of Swissair's board of directors, was the first of 19 defendants to be questioned today by a court near Zurich about the events leading to the airline's planes being grounded on Oct. 2, 2001. The 73-year-old denied charges of breaching his fiduciary duty to shareholders and creditors by depleting corporate assets.

Swissair collapsed after racking up debt during a rapid expansion in the 1990s, fueled in part by a strategy of buying stakes in other airlines such as Sabena SA. The Zurich-based carrier is now a unit of Germany's Deutsche Lufthansa AG.

``The takeover of Sabena was the first mistake and they didn't realize until too late how much it was costing,'' Christophe Chandiramani, a former analyst at Credit Suisse who lost his job after predicting a billion-franc loss for the Swissair Group in June 2000, said in an interview today. ``It was decline in slow-motion.''

Fischer, now chairman of Panalpina Welttransport Holding AG, declined to answer further questions, prompting the court to adjourn until 2 p.m. The next defendant to appear in court will be 58-year-old Benedict Hentsch, a managing partner at Hentsch Henchoz & Cie and board member of Sabena and Swiss Re.

National Anger

The trial is the first time that members of the board of directors, also known as the supervisory board, have faced criminal charges for corporate failure in Switzerland. The flag- carrier's failure remains a source of national anger and shame for many Swiss citizens.

Former Swissair directors, managers and advisers face charges including breach of fiduciary duties for fraudulent authorizations, false reporting of business and creditor preference, dishonest management and personal income tax fraud.

The trial at the Bezirksgericht Buelach will examine transactions made within the Swissair Group before and during the airline's collapse. The case will also help clarify the extent to which supervisory board members can be held accountable to shareholders and creditors.

Shared Directors

As is common in Switzerland, France and Germany, members of the supervisory board are usually members of other company boards. Those charged are current and former directors of companies including Credit Suisse Group, UBS AG, Alcon Inc., Nestle SA and Holcim Ltd. are among those charged.

Swiss citizens are still hurt by Swissair's demise more than five years after the grounding of Swissair planes, at the time the fourth-largest European fleet, left 38,000 passengers stranded as the group ran out of cash to buy fuel.

``Trust in Swiss business, trust in the whole of Switzerland, which has always stood for punctuality and seriousness, will be dragged through the mud,'' Switzerland's President Mortiz Leuenberger said on television on Oct. 2, 2001.

For decades the company had been referred to by newspapers and politicians as ``the flying bank'' because of its strength and success, before rapid, leveraged expansion in the later 1990s overstretched the group and a combination of higher oil prices, stronger competition and the damage to the airline industry after the terrorist attacks of Sept. 11 in New York caused it to run out of cash.

The trial is due to last until March 9.

To contact the reporter on this story: Joseph Heaven in Buelach via
Posts: 2568 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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I see all the defendants, are denying, denying, denying.... Who really cares? I think that swissair should be on trial for other far more serious things than this.
Posts: 2568 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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