Lufthansa And Swiss International Come To Terms

by Ulrika Lomas, Tax-News.com, Brussels

15 March 2005

Lufthansa and Swiss International Air Lines confirmed on Sunday that Lufthansa is now prepared to make small Swiss shareholders an offer "based on the average share price of the recent weeks."

Swiss's major shareholders, which include the Swiss government with about 20% and major Swiss banks UBS and Credit Suisse, each with 10%, would receive only token amounts.

After the government leant on the banks in 2002 to help it recapitalize the dying Swissair, which was merged with Crossair into the new Swiss International, management repeatedly ducked the need for dramatic staffing cuts, leading to a series of financial crises in 2003 and 2004.

Lufthansa has dropped demands that the shareholders inject yet more cash into the ailing airline, but is still demanding major staffing cuts that could mean the loss of 800-1,000 jobs, aiming to save some CHF300 million in costs. Staff are threatening to strike, of course.

"The jointly developed business model aims at providing a concentration of the strengths of both airlines, while retaining the independence of Swiss to the extent possible," Swiss said in a statement.

Swiss International is currently capitalized at CHF545 million, although it would cost Lufthansa only a fraction of this to buy out the minority shareholders. Swiss International shares rose 20% on Friday.

The two airlines came close to a deal in 2003, but it foundered on price. Since then, Swiss International has lost a further SWF1bn, and has nowhere to go.

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