Crossair aims for rapid growth as Swissair falls

 - May 23, 2008, 7:41 AM

A task force headed by Peter Siegenthaler, director of the Swiss federal finance administration, has proposed a dozen seasoned executives for Crossair’s new board of directors, only one of whom–Claudio Generali–serves on the current board. Crossair founder and current chairman Moritz Suter is not on the list, neither as chairman nor member. The task force proposes Dutchman Peter Bouw, former CEO of KLM, as the new chairman.

According to Siegenthaler, “Bouw is the right man with relevant experience for the task to be accomplished.” Current Crossair CEO André Dosé is to stay on. Suter’s dismissal would be a surprise, but it is no secret that he is feared by Swissair personnel, especially pilots, for his reputation as a tough salary negotiator.

According to current plans, Crossair’s parent airline, Swissair, will cease to exist after this coming March, by which time the Basel-based regional plans to assume most of the former flag carrier’s routes. Until then, Swissair will operate intercontinental liaisons Crossair cannot take over on short notice for lack of infrastructure and bilateral agreements. Swissair operates under creditor protection similar to U.S. Chapter 11, and officials stress that Crossair will not become the legal successor of Swissair.

Under a plan called Phoenix Plus, Crossair intends to take over 26 medium-range airliners from Swissair (20 A320s and six A321s) on short notice to serve European destinations now in the Swissair network. In March, Crossair plans to assume responsibility for 26 long-range airliners from Swissair (13 MD-11s and 13 A330s) and start flying to overseas destinations, after it clears legal hurdles and builds the necessary infrastructure.

In the end, Crossair may employ up to 5,000 former Swissair staff members. The new airline’s management has entered talks with Swissair’s code-sharing partner, American Airlines, but may later seek an alliance with another large airline group. Crossair CEO Dosé said he is “80-percent certain that Phoenix Plus will work out
as planned.”

Crossair announced a profit in September of SFr4.4 million ($2.64 million) on revenues of SFr130 million ($78.13 million).

To allow for Crossair’s expansion, its board plans to raise share capital from the current SFr328.5 million ($198 million) to a targeted amount of SFr3.4 billion ($2 billion). Fresh capital comes from various sources, including Switzerland’s two largest banks, Crédit Suisse and UBS, which have bought Swissair’s 70-percent stake in Crossair.

The purchase gives them a participation of SFr300 million ($180 million) together with their previous holdings. They also plan to invest another SFr600 million ($360 million).

Other banks and large corporations have pledged SFr1.34 billion ($805 million). This amount includes a financial package put together by former Crédit Suisse chairman and Swissair board member Rainer Gut, and it may include additional funds from CS itself.

The Swiss government has pledged to buy SFr600 million ($360 million) worth of Crossair stock, giving it a stake of about 20 percent. Local governments and airport towns have promised another SFr400 million ($240 million).

The regional parliament of Zurich has already approved SFr300 million ($180 million), but that amount has to be confirmed by popular vote next month.

Other local governments and towns are making their contribution subject to final approval of Zurich’s SFr300 million contribution. Finally, private investors have pledged more than SFr100 million ($60 million). All these figures are tentative and will have to be confirmed at a December 6 shareholders assembly.

To ensure an orderly transition of flight operations to Crossair, the Swiss government has provided a so-called bridging credit of SFr400 million ($240 million) after Swissair’s bankruptcy in late September. This amount is not related to any participation in Crossair.

Later, the government set up another bridging credit line of up to SFr1 billion ($601 million) to enable Swissair to fly intercontinental routes until March. The flag carrier is heavily in debt (up to $12 billion) and, pending its liquidation, continues to operate only under protection from its outstanding creditors.

Because Swissair ceased paying bills, its subsidiaries Atraxis (ticket management and data processing), SR Technics (maintenance and refurbishment) and Swissport (ground handling) threatened to cease operations. Texas-based EDS Corp. has since bought Atraxis and UK investment firm Candover will take over Swissport.

Sabena, in which Swissair held a 49.5-percent stake and a debt of SFr650 million ($391 million), has also declared bankruptcy. In an operation similar to the Swissair/Crossair scheme, Sabena operations will be partially taken over by its former regional subsidiary Delta Air Transport. Swissair also held a 49.5-percent stake in the German charter airline LTU. That participation has been taken over by Stadtsparkasse Düsseldorf, a local bank at LTU’s home base. U.S. investment bank Merrill Lynch has submitted a plan to reschedule Swissair’s debt, but a revival of the airline or an alternative to the Crossair upgrade is not planned.