Swissair gets cash aid

October 3, 2001 Posted: 1647 GMT

LONDON (CNN) -- Cash-strapped Swissair has been offered emergency funding by the Swiss government to enable it to keep flying until the end of the month.

Swiss finance minister Kaspar Villiger said on Wednesday: "Swissair's flight operations will be secured until October 28 by a government credit of 450 million francs ($280 million)."

The move came after the Swiss national carrier grounded 262 flights leaving 19,000 passengers stranded on Tuesday, as creditors demanded cash up front for services. Several Swissair aircraft were seized at European airports.

Swissair spokesman Patrick Jeandrain told CNN: "We are short of money, meaning that we had to stop the flights yesterday and we are still not flying today, but we are expecting a decision on whether or not we will be able to fly on Thursday."

Switzerland's two biggest banks had salvaged the Swissair brand and some profitable operations on Monday, leaving the group with a mountain of debt.

But Villiger said after a Swiss cabinet meeting on Wednesday the banks had offered no additional money to help keep Swissair's planes flying in the next few weeks, Reuters reported.

However, he said Credit Suisse Group and UBS had offered to pay out Swissair Group employees' deposits in the company's savings bank.

Swissair shares, which had been suspended over the last two days as it worked out a rescue plan, plunged 97 percent to an all-time low of 1.35 Swiss francs on Wednesday.

"The market does not like people with lots and lots of debt and not necessarily the cashflow to finance it," Mark Tinker, equity strategist at Commerzbank, told CNN. " The problem is that airlines are very exposed by their running costs, and Swissair has just hit a wall as far as its debts are concerned."

There was more bad news for the beleaguered European airline industry, when Swissair's 49-percent owned Belgian airline Sabena filed for bankruptcy protection. Sabena has asked its government for cash to keep its planes in the air.

"Sabena has the necessary cash to guarantee normal activities for the time being," said the airline, which had been due to receive a promised cash injection from parent Swissair.

Sabena will seek 5 billion Belgian francs ($114.2 million) in bridge financing, a government source told Reuters.

UBS and Credit Suisse Group on Monday agreed to take control of the airline business of Swissair by October 28 and bought its 70.4 percent stake in low cost carrier Crossair for 260 million Swiss francs ($160 million). The banks plan to fold Swissair's airline business into Crossair.

Swissair, which posted a record loss of 2.9 billion francs last year, had already been on the brink of collapse as it attempted to reverse an expansionist policy that left it 17 billion francs in debt. The September 11 terror attacks on the U.S. led to falls in passenger traffic and accelerated its demise.

Swissair, Europe's seventh-largest airline, received 260 million Swiss francs for the Crossair stake on Tuesday, but chairman Mario Corti said it was unclear when the fleet of about 77 jets would fly again, since the fresh influx of cash would only last so long.

The group grounded aircraft after it could not convince UBS that it could not operate without cash on Tuesday.

"This morning I pleaded... on my knees... to advance this liquidity for the flight operations," a visibly shaken Corti told Swiss Television on Tuesday night.

The suspension affects thousands of workers and will put even more jobs at risk than the 2,650 redundancies announced on Monday, Swissair said.

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