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Swissair seeks protection
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October 1, 2001: 7:09 p.m. ET
Airline group accepts banks' rescue plan, but may face legal actions
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NEW YORK (CNNfn) - Swissair Group announced on Monday a major restructuring, and accepted a bank bailout, to avoid collapsing under a mountain of old debt in the wake of the Sept. 11 attacks in the United States.
The 70-year-old Swiss flag carrier said it would hand over most of Swissair flights to its low-cost regional carrier Crossair and seek court protection from creditors for other key businesses.
Swissair, crushed by debt and a sharp decline in air travel, said it plans to cut 2,560 jobs, and stop payments to foreign affiliates Sabena of Belgium and charter group LTU in Germany. The company also said it will not be able to honor outstanding obligations to former partners Air Littoral and Air Liberte in France.
Belgium immediately announced it would take legal actions to get badly needed cash owed by Swissair to its national airline, which itself is now under threat of collapse.
Group Chairman Mario Corti said Crossair remains financially healthy, and would be able to take over two-thirds of the flights from Swissair.
Swissair Group stock, which is widely held by the Swiss public, will be worthless when it resumes trading Wednesday at the earliest. It has already lost four-fifths of its value so far this year.
Presenting a last-minute deal to avert bankruptcy for the cash-strapped group, Corti told a news briefing that Swissair Group plans to sell the 70.4 percent stake it now holds in Crossair to Switzerland's top banks, UBS and Credit Suisse Group, for 260 million Swiss francs ($160.4 million).
"This drastic restructuring was the only alternative to secure the future of the Swiss aviation business," UBS Chairman Marcel Ospel told the news conference.
Corti blamed the Sept. 11 terrorist incidents in the United States for the industry slowdown, which he said the company was already struggling under a mountain of debt caused by a failed expansion strategy.
"The group estimates the negative impact on cash flow and equity of 3.1 to 3.8 billion (francs) by the end of 2002," he said.
The banks helped put together the partial rescue package by jointly providing a total of 1.36 billion Swiss francs in financing.
As part of the deal, the banks granted a bridge loan for up to 250 million francs to help keep aviation-related businesses afloat while Swissair seeks a buyer for them.
They also earmarked 500 million francs in extra working capital for Crossair, while underwriting a capital increase at Crossair for up to 350 million francs.
The costs of the operation will be shared by UBS and Credit Suisse in a 51 percent-49 percent split. They invited the Swiss federal and cantonal governments to voluntarily buy up to 30 percent of Crossair's share capital.
-- from staff and wire reports 
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