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Enron With Wings
'Whiff of Enron' emerging from Swissair
Posted Thu, 27 Jun 2002

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.

Posts: 2567 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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While they're at it, I think it would make a lot of sense to take a close look at the IFEN deal. Afterall, lives were lost.
Posts: 2567 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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Barbara.. I agree with you, but I fear, as far as these people are concerned, the terrible accident
of SR111 is now old news. They are simply trying to get the biggest bang for their buck, and that
is chasing the money. Perhaps when the TSB issues its findings, the press will again become
interested, however briefly, and if enough of you make noise, then, and only then, and only
perhaps, someone will sift through the files. SwissAir is no more, and no doubt, its dirty laundry will have a difficult time finding its way to the cleaners. Unfortunate. I would add a sad graemlin, but I don't know how, so :-(
Posts: 58 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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Cecil, you're right. The media's (and the public's) attention span is about fifteen minutes. And, although we're not sorry that Swissair's gone, it doesn't help the cause much. Another issue is that the whole story is so complicated - Swissair, IFT, SBA, sub-contractors, DERs, DASs, STCs, regulators, complex relationships, international law - arrrghhhh! The Enron scandal, for example, is complex if you get into the details, but conceptually simple - the bad guys lied about their finances, ripped off the stockholders and then shredded documents to cover it up. People understand stealing money. But the Swissair 111 story is about politics, engineering, operating procedures ... - it's hard to explain. We hope that the TSB's final report will sum it up in a way that is understandable, but we fear that it's going to be thousands of pages of complex and ambiguous analysis. We'll just keep our fingers crossed and do what we can to prevent the story from being forgotten.

- Mark and Barbara
Posts: 2567 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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Mark and Barbara... I recall posting a message immediately following the SR111 tragedy, in
which I stated the legacy of those who perished will be the correction of that which caused this
terrible accident. For those of us in aviation now and for those who join in the future, SR111
will not be forgotten. It is a milestone, and it will forever stand as an example to build upon in the promotion of safe flight. Their loss was not in vain. We have seen changes, and hopefully we continue to see recommendations all as a result of SR111. Governments are notoriously slow, and the Corporate community is ever protective, but we have seen the residual effects already. The suspected systems have been removed from all airplanes. The airline out of business along with companies who participated in the development, implementation, and installation of the IFEN. I can only offer what must be shallow comments, but I too share in your frustration that
discipline of the primary principals has escaped all and I wish that I could be more optimistic that some resolve will be forth coming for you.
Posts: 58 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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