Zurich throws the book at Swissair board

In pieces: the entire board of the defunct Swissair have been charged with mismanagement Keystone

Prosecutors in Zurich are to charge the entire board of the defunct Swissair with mismanagement for their role in bringing down the national airline.

The carrier collapsed under a mountain of debt in October 2001, after its planes were grounded worldwide, leaving thousands stranded and resulting in a national humiliation.

The entire management board, including former Credit Suisse boss Lukas Mühlemann and industrialist Thomas Schmidheiny, face charges of defrauding creditors, falsifying documents, making false statements about the business and mismanagement.

Some of those charged, including former chairman Eric Honegger, described the case against the board as groundless. A lawyer for former CEO, Mario Corti, said his client rejected the accusations and would fight them.

Zurich cantonal prosecutor, Andreas Brunner, said the 19 former board members charged were not accused of trying to enrich themselves through criminal intent. Rather, their actions had been “driven by desire to save the company”.

Disastrous

Swissair was brought down by a disastrous expansion strategy initiated by a former chief executive, Philippe Bruggisser, which involved buying stakes in loss-making airlines. The aim was to create an alliance to rival others like Lufthansa’s Star Alliance and BA’s Oneworld.

Bruggisser was forced out in January 2001, to be replaced by Nestlé executive Mario Corti. The heavily indebted airline collapsed after the downturn in the aviation market caused by the September 11, 2001, terrorist attacks.

The charges are based on subsequent investigations ordered by Swissair’s liquidator who is trying to salvage as many assets as possible to pay back creditors.

The liquidator is himself suing former directors for mismanaging shareholders’ assets.

Dubious

A 2003 report by consulting firm Ernst & Young said that leadership errors, dubious accounting methods and lack of controls all contributed to Swissair’s collapse and left the way open for legal proceedings against former management.

The report said the Swissair board must have known in summer 2000 that the company faced a deficit of SFr4.5 billion (then $2.7 billion). It also found that the carrier’s grounding was unnecessary on strictly financial grounds because Swissair had more money at its disposal than it claimed to have.

After its abrupt collapse, the Swiss government and banks injected over a billion francs into the creation of a new national carrier, Swiss, which was formed from the remains of Swissair and the regional airline Crossair.

Swiss, which has yet to make a profit since taking off in April 2002, was taken over by Germany’s Lufthansa last year.

Unusual case

A Zurich-based corporate legal expert, who did not want to be named, told swissinfo that the case was unusual in Switzerland for its unprecedented size and scale.

“There are some unusual points. The grounding of Swissair was very emotional and I cannot remember another case in Switzerland in which so many members of the board, many of them well known, were indicted,” he said.

“It is unlikely that the court case will be heard this year as there are about 2,000 files of evidence to be prepared. This will also make it harder to get an overview of the case.”

The charges carry a maximum three years in prison if proved.

swissinfo with agencies

In brief

Swissair planes were grounded on October 2, 2001, after the company had been in business for 71 years.

The downturn in the aviation market after the terrorist attacks of September 11, 2001, proved the last straw for the heavily indebted Swissair, which folded the following year.

The airline collapsed because it over-extended itself by buying stakes in numerous loss-making airlines, including Sabena, in an attempt to form its own airline alliance.

The remains of Swissair and the regional carrier Crossair were brought together in 2002 to form the new national carrier Swiss, which was in turn taken over by Lufthansa last year.

Swiss has yet to make a profit.