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Aviation History
1996
1996 - 0993.PDF
BUSINESS Swissair shows renewed grit over cost-cutting KEVIN O'TootE/GENEVA SWISSAIR PRESIDENT-elect Phillippe Bruggisser has put some steel behind a new campaign to drive down costs at the airline group, including plans to shed at least another 1,600 jobs. He also expresses determina tion, echoed throughout the man agement team, to press ahead with the controversial decision to scale down long-haul operations at Geneva, in favour of Zurich. Bruggisser, speaking at the group's annual press conference in Zurich on 18 April, issued a stark warning that Swissair could not survive the fierce competition of a deregulated Europe unless further heavy cuts are made in its tradi tionally high cost base. Swissair has already shaved around one-third off costs over die past five years, but the group is still grappling with falling yields and the strength of the Swiss franc. The latest drive, oudined earlier this year, is designed to add around SFr500 million ($415 million) to the bottom line by 1998. The underlining financial goal is to achieve a 12% return on capital, more than double die group's pre sent performance. Bruggisser says that this will include the loss of some 5% of die group's 33,000-strong workforce, but believes that the bulk of these will be achieved through an early- retirement programme being launched by the group. Workers who take up the offer will receive 70% of existing salaries. Among die immediate actions being taken is die decision to pull Bruggisser: a new resolve on costs 15 intercontinental services out of Geneva, leaving Switzerland's French-speaking capital with daily US services to New York and Washington as its only long-haul Swissair services. The move has come under fierce attack from the local community, forcing the Swiss Government to step in to ask for a compromise. Swissair has until the beginning of May to present new proposals, but managers appear to rule out a major reversal of dieir decision. Bruggisser brushes aside any suggestion of seeking Government subsidies to maintain unprofitable services. He also warns against efforts to boost services at Geneva by giving free access to outside car riers, although some within die air line believe that this is a growing political possibility. Financial analysts have long been looking for signs of a new resolve within Swissair to drive down costs. The robust perfor mance from Bruggisser, who is now the group's chief operating officer, but takes over the top job from Otto Loepfe at the start of 1997, appears to be sending out die right signals. The results of previous restruc turing efforts have already begun to show through in the 1995 finan cial results. At group level, includ ing die fast-growing airline catering business, pre-tax profits were at their best for five years, at SFr200 million. That was more than wiped out by a SFr365 million provision to cover the airline's retirement scheme and odier measures. The core airline operation also managed to push operating profits above SFrlOO million, having achieved little better than break even the year before. Yields fell by more than 7%, however, leaving revenues marginally down, while the strength of the Swiss franc wiped an estimated SFr34 million off profits. Over the next three years the airline's target is to achieve a 20% cut in seat costs and to raise average load factors from 65% to 70%. An early chance for productivity improvements comes from the current round of pilots negotia tions which managers believe could now be completed before July. By 1998, Swissair also aims to turn around the losses at its part ner, Belgian flag carrier Sabena, in which it holds a 49% stake, repre senting the Belgian carrier's first profit for around two decades. Bruggisser says that Sabena's turnaround is largely on course, although profits had been hit by 1995 's series of strikes. Q BAe completes AWADI acquisition ready to build in Asia B RITISH AEROSPACE has completed the acquisition of Aus tralian defence contractor AWADI for AS50 million ($38 million) Flight International, 17-23 April). The acquisition more than dou bles die size of BAe's Australian subsidiary and aims to increase the group's export opportunities in South-East Asia, says BAe chief ex ecutive Dick Evans. AWADI has sales of around A$150 million and a workforce of 700, with a forward orderbook worth A$300 million. This will join with BAe Australia's 900 employees and sales of A$l 15 million. AWADI was previously owned 70% by the country's privatised aerospace group AWA and 30% by a pension fund. • JPATS win helps build optimism at Smiths SMITHS INDUSTRIES, re vealing another set of healthy half-year results, underlined its growing confidence in the gather ing pace of recovery in its aero- space business with the announcement of an avionics order potentially worth $100 mil lion for the US Army and Navy Joint Primary Aircraft Training System QPATS). Smiths says that the initial JPATS order, which covers a package of cockpit instrumenta tion for the first batch of 141 air craft, will be worth $23 million. The UK avionics company ex pects that to mushroom as deliv eries of the Raytheon Aircraft trainer climb to 711 over the next 20 years. The order supports a growing optimism within Smiths that the worst of the US defence decline is over. Group chairman Sir Roger Hum forecasts that spending "...has reached the bottom", sug gesting that US military-aircraft procurement will average $15-20 billion over the next ten years. That is still down from a peak of more than $50 billion a decade ago, but Hum adds that avionics will grow proportionally to around half of the expenditure. A "surge" in orders for die Boe ing 737 and 777 programmes on which Smiths has strong positions has also added to the company's confidence. The benefit has yet to make a major impact in the business' finan cial performance. The results for the first half of the financial year to the end of January showed aero space revenues marginally down at £171 million ($260 million), with a "modest, but re-assuring" improve ment in profits, to £17 million, thanks to early cost-cutting. Smiths has spent the past few years building its medical and industrial divisions with a series of major acquisitions. Hum says that the group plans to be a "player" in pending restructur ing in the UK and Europe, but stresses that the group sees no urgency to grow. • FLIGHT INTERNATIONAL 24 - 30 April 1996 13
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