Swiss Contemplates the Lufthansa Lifeline

Plans by German airline Lufthansa to buy its ailing partner Swiss will speed up consolidation in the European airline industry as scheduled carriers join forces to battle their low-cost rivals, analysts have said.

But if the deal goes through and Swiss -- the successor company to former flag carrier Swissair which went bust in 2001 -- is integrated into the wider Lufthansa group, what does the takeover mean for Switzerland?

In purely business terms, the deal from the Swiss perspective would be a sweet one.

Lufthansa and Swiss have long been seen as potential bedfellows. Previous merger talks between the two in 2003 were scuppered by strong resistance in Switzerland, after which Swiss tried -- ultimately unsuccessfully -- to join British Airways' Oneworld alliance.

Since then, Lufthansa has always insisted that it has never closed the door completely on a deal with Swiss, as long as the terms and conditions were right. In the past, Lufthansa has tended to steer clear of big acquisitions, opting instead for code-sharing agreements under the umbrella of its Star Alliance grouping. But in the case of loss-making Swiss, greater synergies would be gained from a straight-forward takeover, analysts argued.

"Strategically, a tie-up would make sense," said NordLB analyst Martina Noss. Lufthansa would be able to get its hands on the hub of Zurich, as well as on Swiss's valuable business clients, and it would be taking over a rival with overlapping routes, she said.

Exane-BNP Paribas analyst Nick van den Brul said that a merger would also be beneficial to loss-making Swiss. "It's not expensive for Lufthansa and it provides prospects for

Swiss," he said.

Life insurance for Swiss

HVB analyst Uwe Weinrich agreed. "Lufthansa will act as some sort of life insurance policy for Swiss," which managed to narrow its losses last year, but still ended the year in the red, he said.

Pierre-Yves Savidan, airline expert with management consultancy BIPE, said that a key advantage for Lufthansa would be the hub of Zurich. "Zurich could become a second regional for Lufthansa after Munich, or it could even serve as its intercontinental hub if a third runway is not built in Frankfurt," Savidan said.

Lufthansa has promised to maintain Swiss as an independent brand underneath the Lufthansa umbrella. "It's a quality brand," Savidan said. And at a time when Lufthansa is increasingly targeting high-paying customers, the Swiss image could prove an attractive crowd puller.

Everyone's a winner?

Analyst Jan Herbst also saw a tie-up as a good idea. "Lufthansa would be the leading player in central Europe," he said. "Even if Swiss succeeds in returning to profitability, it will not be able to keep its stand-alone position long term. Time is therefore on Lufthansa's side," Herbst said.

Despite all the positive economic and business noises being made, the takeover would mean the end of Switzerland's direct association with the airline industry. Sadly, the Swiss have been watching helplessly as a symbol of their national identity has slowly eroded over the last four years.

Swissair collapse starts the descent

For the Swiss, the autumn of 2001 was the beginning of the end. Swissair finally succumbed to financial ailments and collapsed. From the ashes of the national carrier, mainly thanks to a package put together by the Swiss government, Swissair's daughter company Crossair rose to the challenge and, under the name of Swiss, was remodeled as the nation's airline.

It was a matter of national pride, although one that the contributing banks were told would result in little or no return on their investment.

In April 2002, Swiss took to the skies with the former Swissair fleet and staff at its disposal. However, it soon became very clear that Swiss would be too small a company to be competitive in the world market. Slashing prices to attract customers just brought about further hemorrhaging; Swiss dived further into the red.

Pride replaced by survival instinct

Investors stayed away in droves. Swiss looked to be going the same way as its predecessor and Switzerland's own confidence was shaken as it became clear that the airline would not survive without exterior help. By the summer of 2003, Swiss was looking to join Oneworld. But that bid failed and the airline continued to plummet.

Now Swiss has a chance to survive; Swiss jobs will be saved and the flag will still be flown, albeit under the Lufthansa banner. With national pride abandoned long ago for the harsh realities of business, Swiss has the opportunity to fly again and to start a new chapter.