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National pride driving Swissair deal

Financial considerations apparently took a back seat to the refusal to let Swissair fail
Financial considerations apparently took a back seat to the refusal to let Swissair fail  


ZURICH, Switzerland (CNN) -- It's interesting what governments will do when their national pride is at stake.

The Swiss government is in the process of rescuing its national flag carrier Swissair in a last-minute package put together with some of the Switzerland's best-known companies.

The deal is an attempt to save 70,000 jobs, Zurich's international airport and, perhaps more important, Switzerland's pride. The loss of that many jobs could have doubled the country's unemployment rate; according to national statistics, fewer than 60,000 Swiss were registered as jobless in the second quarter of this year.

Commercial considerations apparently took a back seat to the refusal to let a national flag carrier fail.

"It's been very much a national issue, and by that I mean it's more than just the government," says Chris Tarry of Commerzbank.

"Swissair is very much a national icon. I think pressure -- both emotionally and in whatever form -- has been applied to save what is seen as, or what has been seen as, one of Switzerland's greatest assets in the past."

Polls taken ahead of Monday's announcement showed that a majority of Swiss -- just over 60 percent -- favoured at least a quick government intervention to prevent another grounding of the Swissair fleet and avert mass layoffs.

The Swiss are not the first to put their money where their pride is. The Belgian government has given its flagging airline Sabena a $113 billion bridging loan to save it from imminent bankruptcy.

"What we have seen is degrees of rescue aid, and what I think we will continue to see is support for airlines being perhaps allowable as long as they can show they are making progress and not interrupting a process of consolidation," says Tarry.

In the case of 70-year-old Swissair, both the public and private sectors were summoned to help out.

Food giant Nestle, for one, says its pledge is small but that it felt compelled to participate to ensure Zurich's status as an international airport -- and ensure its own status as a good corporate citizen.

Other companies participating include drug firms Novartis AG and Roche Group, telecom operator Swisscom, Zurich Insurance, Ciba Specialty Chemicals and insurer Swiss Re.

Altogether, Swiss government and industry have agreed to spend $2.65 billion to create a new national airline on the back of Swissair, which was forced to ground its fleet for two days and cut 9,000 jobs following the chaos created by the U.S. terror attacks.

The salvage operation will put Swissair's profitable Crossair subsidiary in charge of the new company. Previously, USB and Credit Suisse agreed to take control of Swissair's airline business and bought its majority stake in Crossair. No name has been created for the new airline.

Nestle Chairman Rainer Gut, one of the country's most respected business leaders, will manage the integration of the two operations.

Key test

Aviation analysts say a key test for the new company will be how it blends two very different business cultures.

Some experts have been critical of Crossair, saying it is one thing to operate a small regional operation but quite another to run long-distance flights and the subsidiaries necessary to a Swissair-size operation.

Crossair employees are paid less than their Swissair counterparts and see themselves as part of a dynamic, free-market-oriented company, while Swissair workers are generally seen as self-confident, if not arrogant, observers say.

The Social Democrats and unions accept that salaries will most likely have to be lower than those offered by Swissair, but the size of the decrease remains to be seen.

Monday night, following the bailout announcement, leaders of the four government parties appeared on Swiss television to discuss the bailout. Supporting the deal were the Social Democrats, the Christian Democrats and the pro-free market Radical Party. Only the right-of-centre Swiss People's Party opposed it.

Supporters argued that a complete crash of the Swissair business, and the resulting spike in unemployment benefits and retraining costs, would have been more costly than the government-industry bailout itself.

Critics, though, said the intervention raises expectations that the government might step in if other companies collapse -- and that by helping shape the new carrier, the government will remain under pressure not to let Swissair's successor go under.

"Public pressure, very heavy media coverage and a good touch of national pride contributed to the bailout," said Beat Witschi of swissinfo.org, a division of the Swiss Broadcasting Corporation.

"The general wisdom is that it will now be up to the new management of the new company to get the airline off the ground. Should the proposed model not work, then it would be up to the new management to take the necessary consequences and scale down or reorganise the new carrier."

The bailout was met with a mixed reaction in the Swiss and European press. The Zurich tabloid Blick called the rescue plan "a masterpiece" by Swiss Finance Minister Kaspar Villger, but several other newspapers urged caution and noted that many questions remained.

The Financial Times of London, under the headline "Cloud cuckoo clocks," also questioned the deal, as did The Wall Street Journal.

"It appears hard-nosed commercial sense has been undermined by national pride. ... The government, too, risks putting Switzerland's reputation for prudent housekeeping on the line," the FT wrote.

Said the Wall Street Journal: "Some still view the arrangement as nothing more than a stay of execution and question starting a new flag carrier at a time when the public is reluctant to fly and the airline industry as a whole is trimming capacity."

-- CNN Correspondent Paula Hancocks contributed to this report.



 
 
 
 


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