Are you sure?

Swissair expanded into Poland to fill „huge hole”

Swissair Group invested in Poland's national carrier to try to fill a „huge hole” in eastern Europe, former CEO Philippe Bruggisser told a court yesterday as he defended the airline's expansion.

Bruggisser, whose strategy of buying European carriers helped push Swissair into bankruptcy in 2001, is charged with fraudulent accounting and damaging shareholders' interests, which he denies. Bruggisser is one of 19 defendants in the criminal trial over the airline's collapse. Swissair bought a stake in Polskie Linie Lotnicze LOT SA and made monthly payments to its CEO in an effort to compete in the region, he said. Swissair had to find a new partner in eastern Europe after Austrian Airlines Group broke off ties in 1999, joining German rival Deutsche Lufthansa AG's Star Alliance, he said. „We had made no efforts to open destinations to the east because we'd relied on Austrian Airlines to do that and had fed them Swiss passengers” through the Qualiflyer alliance, Bruggisser testified yesterday in Buelach, near Zurich. Swiss prosecutors say „consultancy” payments to former LOT CEO Jan Litwinski burdened the beleaguered Swissair's finances by a further 1.07 million Swiss francs ($852,000).

Testifying for a second day, Bruggisser said that after the Polish government cut state employees' salaries in 2000, the payments to Litwinski were necessary to prevent him from leaving to join a private company during what was a „critical period” for Swissair and Qualiflyer. LOT paid the money back to Swissair under a verbal agreement for services that otherwise wouldn't have been charged, said Bruggisser and Litwinski, who also testified yesterday. „Most of my contracts were verbal,” Bruggisser told prosecutors, agreeing to answer their questions after refusing to respond on January 25, when he only answered the judge. „You'll find very few written contracts among your many files. We're not the military.” Swissair competitors Lufthansa and British Airways Plc had also offered a partnership to LOT, which had modernized its fleet and switched to western airplanes from Russian-made ones, Bruggisser and Litwinski said. Swissair wanted LOT to help its ground unit, Swissport, get a contract to take over aircraft fueling and handling of passengers and freight in Warsaw, Bruggisser said. The company was also looking to LOT to assist its expansion in Hungary, the Ukraine, the Czech Republic, Romania and the former Soviet Union through smaller carriers there that didn't fly to western Europe, he said.

„I wanted someone who knew the market, had contacts from the former Communist era and knew the language,” Bruggisser testified. „I could have hired an investment banker or a lobbyist, but it would have cost a lot more. This was the low-cost variant.” Litwinski said he did the work he was paid for, denying charges of fraudulent accounting and breach of fiduciary duty. Peter Somaglia, a former Swissair executive who was in charge of the LOT project, also denied the charges during testimony yesterday. Bruggisser was fired in January 2001 after losing support for his so-called „hunter” strategy, under which he bought stakes in smaller carriers to form a group big enough to challenge larger airlines like Lufthansa. Swissair was grounded in October of that year after running out of cash and racking up 17 billion francs (€10.48 billion) in debt. The airline's successor, Swiss International Air Lines Ltd., is now being bought by Lufthansa. The trial, due to run until March 9, is Switzerland's biggest corporate case and the first time members of a board have faced criminal charges for a company's collapse. (Bloomberg)