The business is among the worst per- forming of any industry. In the last 10 years in the U.S., for example, the airline industry has cumulatively lost over $50 billion and numerous carriers have disappeared, either by bankruptcy or merger. Internationally, the picture is similarly gloomy, especially in mature markets like Europe. However, many countries around the globe continue to protect and support failing flag carriers that are often absorbing substantial amounts of public funds. is a notable excep- tion, with lessons to teach the rest of the world. By Charles E. Schlumberger

If the SWISS c a n’ t ... Lessons on letting go of a national carrier

58 | IFC.ORG/HANDSHAKE Following the post-9/11 economic turndown, even when compared with the financial loss (not Swissair’s assets lost value dramatically. The Swiss to mention the emotional sting) from the sale of national carrier was grounded in October 2001 Swiss to . and bankruptcy proceedings followed shortly thereafter. Most Swiss citizens and creditors were LETTING GO certain that the Swiss government would bail out the national airline—because that’s what proud Most state-owned or legacy carriers that face governments do, right? financial troubles should not be considered for restructuring and/or privatization. They often However, the Swiss government kept Swissair have a complex history with many legal and alive only until March 2002, when liquidation moral obligations toward staff, clients, the host was initiated. After that, the government funded country, or passengers. Liquidation is usually the creation of the successor airline Swiss Inter- a better solution. It averts the problems that national Air Lines (“Swiss”), which saw a former can come from existing generous benefits and regional airline take over most of the former pension schemes for senior staff, the discounts Swissair’s routes, , and staff. Three years and free tickets gifted to those close to the carrier later, the new Swiss carrier was sold to Lufthansa, or its owners, and especially the notion that the where it became the most profitable airline airline serves the country and therefore must fly within the group.

The Swiss government chose to let go of its to distant destinations, generating losses. national carrier because of the huge losses it But although liquidation makes the most sense generated as a result of its complex and bulky economically, there continue to be numerous business structure. Swissair owned multiple examples of failed privatizations or prolonged loss-making carriers, employed a complicated funding of money-losing, state-owned carriers legal structure, and had taken on massive debt that absorb millions of dollars of public funds— to support its operations. Restructuring such money which could be put to good use in other an entity was considered far too complex, risky, sectors. The Swiss government, faced with a and expensive. The fresh start that liquidation failing carrier, gave it wings to fly away, charting afforded the government was more attractive a course others should follow.

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