Swissair CollapseOctober 2001

Swissair was started in 1931 by the merger of two main Swissairlines and it was in the market till 2002.

BalairCTA

SWISSAIR

Ad Astra Aero

1931

Events

1978Means that airlines are exposed to increasingly harsh competition in order to become profit making enterprises.

So,No longer require government

subsidies and routes guaranteed by the

state.

This aimed to lowering the standards for passengers and personnel.

NEW CHEAP FLIGHT, NO EXTRAS OPERATORS

THE SWISSAIR GROUP WAS RENAMED SAIRgroup, WITH FOUR SUBDIVISIONS SAIRlines:-

SAirGroup1. Crossair belonged.2. Sair3. SAir4. SAir

Services Logistics Relations

1997

Collapse root causes (1) :-1. The Sair Group regarded white-collar staff are only in

Switzerland.2. Worldwide Sair Group employs 72,000 staff, with 21,000

working in Switzerland. 3. This is a much higher staffing level compared to other airlines,

with Swissair employees among the best paid in the world.4. Due to high labor costs and the country’s strong currency is also

one of the most expensive business locations in the world –, and the very cyclical nature of the airline industry.

The Financial Times Deutschland commented: “The old Swissair enjoyed living it up. Its staff enjoyed

privileges that were inconceivable for the competition.”

collapse root causes (2) :-

1. The strategy was called as “Hunter Strategy”. This strategy was mainly a result of government influence in decision making

Ambitious equity-based alliance and acquisition strategy instead of partnering strategy to distribute the risks.On the other hand, passenger numbers remained well

behind expectations and the beginning world recession meant the enterprise was unable to finance its ambitious

plans and accumulated a gigantic mountain of debt.

collapse root causes (3) :-

1. Swissair’s decision to acquire airlines instead of partnering with them was taken under political pressure as it was considered national pride.

2. Social and political pressures on decision making didn’t consider and acknowledge the changes in economy in the airline sector itself or European Union at that time.

collapse root causes (4) :-

1. Crises had been building up at Swissair since the year 2000. For the first time in its history, the company recorded a great loss, amounting to 2.9 billion francs ($1.8bn) and which consumed almost its entire capital reserves.

2001collapse

Intensive negotiations took place with the main creditor banks, (UBS) and (CS), over further credits and the reorganisation of Swissair.

End of September 2001:-1-The banks were no longer prepared to pump any more money. As They regarded the white-collar staff as the main problem.2-Swissair and Cross air developed a new airline—the Swiss Air Line. 3-To further reduce costs, the number of dismissals would be increased to 10 percent of the staff.4-practically bankrupt on September 26, after several smaller banks cut their lines of credit.5-it was agreed on September 29 that the banks UBS and CS would purchase a 260 million franc ($160m) share in Crossair and give Swissair an interim credit of 250 million francs ($154m) to guarantee flights until October 3.

6-Signing of the contract and the transfer of funds was delayed so much by the banks that the cash arrived “too late” 7- Swissair had to ground all its flights. The company did not even have the money to pay for fuel and airport taxes8-declared bankruptcy.

THE UGLY OF CORPORATE GOVERNANCE• Swissair was the symbol of national pride of

Switzerland.• 30 % government ownership , so it decide the selection

the CEO.• The CEO conducting the business congruent with the

political agenda of the Swiss government.• The Switzerland political norm pressured auditors

(PricewaterhouseCoopers) in auditing financial statements.

1. Swissair should have an independent structure of boards ,that able to check and balance structure for management.

2. comprehensive review of the stakeholders’ theory of corporate governance which points out the presence of many parties with competing interests in the operations of Swissair

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