After Swissair, who’s next?

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Last week, the unthinkable happened – Swissair grounded all flights. The move sent shockwaves throughout the industry – if this could happen to Swissair, the third most significant Swiss icon after the flag and the Matterhorn – what’s next for the troubled aviation world? Ian Jarrett reports. When Kuoni’s head of corporate travel development, Chris Linder, returned to Zurich from the TAX 2001 conference in Singapore last Wednesday morning, he was confronted by a sight no Swiss national ever thought possible. Dozens of Swissair aircraft were lined up on the tarmac, grounded, after the national carrier had been left high and dry by its bankers. The failure of Swissair, once regarded as the world’s most reliable airline, produced shock waves that reverberated well beyond the European borders. If it could happen to Swissair, so soon after the collapse of Ansett Australia, which airline would be the next domino to fall? Rob Riujter, chief financial officer for KLM, nominates British Airways and Scandinavian carrier SAS as airlines in perilous positions. “It is every man for himself,” he said, adding that BA’s major problems are its cash burn and commitments to suppliers. “It needs to slow outflows and persuade its suppliers – and that means Boeing and Airbus – to share the pain.” Phil Conduit, chairman of Boeing, believes the aviation risks following September 11 are far worse than after the Gulf War. Conduit said a number of American airlines are facing imminent bankruptcy as a result of the terrorist attacks. The US government has committed funds to help the American airlines through the crisis and now several European carriers – including BA, Virgin Atlantic, Air France, Alitalia and British Midland – are going to the European Union with pleas for funds to see them through the immediate crisis. Under its former chief executive, Philippe Bruggisser, Swissair pursued a high-risk policy of buying stakes in European airlines that included shares in Austrian Airlines, Sabena, Poland’s Lot, and France’s Air Littoral, AOM and Air Liberte. Swissair also took a 20 percent stake in South African Airways. The airline’s strategy focused on consolidating several European carriers to build a critical mass which it did not have in its small domestic market. In 2000, Swissair owners SAir Group announced massive losses, forcing a sell-off of assets, including Swissotel to Raffles International. If the Swissair strategy sounds vaguely familiar, it should be. Singapore Airlines, which also has a small domestic market, has attempted to become a global player by pursuing growth through minority stakes in other airlines. SIA invested US$260 million in Air New Zealand last April and since then, its 25 percent stake has shrunk disastrously to just four percent. SIA also invested in 49 percent of Virgin Atlantic, an airline that is now seeking state assistance to help it through the crippling financial setbacks resulting from the loss of transatlantic traffic. A planned investment in Air India which contained plenty of downside was abandoned even though SIA was the last bidder standing after other potential investors pulled out. SIA is currently talking to the administrators of Ansett Australia about a possible rescue of the failed airline. Chief executive Dr Cheong Choong Kong said that SIA was keen to explore the possibilities offered by this opportunity but “there are many issues to resolve before any commitment can be made”. Not least of these issues is that if SIA makes an investment or management commitment to Ansett Mark II, it will put itself in opposition to Virgin Blue, effectively working against an operation in which it has an interest through Virgin Atlantic. Unless, of course, SIA has a bigger plan embracing Virgin Blue and Ansett Mark II joining forces to oppose Qantas. Of all the scenarios being touted following Ansett’s collapse, this one seems to make the most sense. SIA has the cash reserves, the management expertise and the support of both the Singaporean and Australian governments to enable it to make a move into the domestic market Down Under. Odd, then, that when Sir Richard Branson visited Singapore this week for talks with Dr Cheong, SIA refused to discuss either Virgin Blue or Ansett at the meeting. Aviation insiders have found Dr Cheong’s strategies hard to fathom in recent times. This latest announcement – contained in a three paragraph SIA press release – that Virgin Blue is off the radar screen for SIA will have analysts scratching their heads again.

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