restart as an option for a sustainable South African national airline

and volatility in foreign exchange rates, maturing loans and lack of working capital (SAA 2018:99). In June 2018, SAA reported an unaudited loss of R5.673bn for its 2018 financial year (SAA 2018:8), R2.9bn worse than its budgeted losses (SAA 2018:7) Sales were R2.04bn below the budget and Background: The non-implementation of certain key initiatives of South African Airways’ (SAA’s) turnaround strategy poses a risk that SAA may not recover financially. Objectives: The establishment of SWISS (previously known as Crossair and Swiss International Air Lines) as a successor airline to Swissair’s liquidation was studied to determine the viability of closure and restart of a smaller successor state-owned airline as an alternative option to a sudden liquidation of SAA. Method: The study is based on a literature review of analysis, official reports and financial results. Results: Three distinct phases for the establishment of the successor airline for Swissair were identified: (1) Financial distress of the SAirGroup (Swissair’s holding company) and the factors which contributed to Swissair’s demise. (2) The transition from Swissair to SWISS. Swissair’s grounding was caused by a liquidity crunch followed the announcement of bankruptcy protection. Flight operations were restarted a few days later with financial support from both the State and the private sector. Some of Swissair’s assets, routes, staff and flight operations were transferred to a subsidiary, Crossair, as successor airline, later re-branded as SWISS. SWISS, however, continued to incur losses despite progressively reduced scale of activities and four restructuring plans. (3) As a Swiss-based national airline SWISS, which became profitable following its acquisition by Lufthansa. Conclusion: The transformation of SWISS as successor airline to Swissair is an option to mitigate the risk of a sudden service disruption of SAA. Serious pitfalls require detailed preparation and funding before implementation. SWISS only became successful following its acquisition by Lufthansa.


Introduction
The social value of the study The absence of a realistic, achievable turnaround plan combined with the lack of funding to maintain losses thereof poses a risk that SAA simply may go out of business if it cannot settle debts as they become payable in future. Chapter 6 of South Africa's Companies Act makes provision for business rescue of financially distressed companies (Companies Act 2008). However, placing SAA under business rescue was ruled out by SAA's Chief Executive Officer (CEO) who stated that business rescue could 'trigger the release of the guarantee' which would have consequences for SAA as well as the country (Carrim 2018:2, 5).
An alternative option, which is explored in this study, is to mitigate the risk and economic impact of a sudden liquidation of SAA by means of a planned closure and restart (or carveout) of viable operations -a smaller and more focussed successor state-owned airline. This would establish a smaller sustainable state-owned airline to continue operations. South African Airways' unviable operations and excessive costs would then be settled in a planned and coordinated manner by the government.
The study provides a practical alternative approach to resolve the dilemma of increasing trend of SAA's losses, SAA's failure to achieve and maintain a successful turnaround and government's inability to accommodate these losses in the normal budgetary process.

The scientific value of the study
This study fills the gap in the knowledge base of the option of a start-up of such successor state-owned airline and identifies the risks associated with such alternative course of actions and important lessons learnt. Real-life examples of such an approach exist in Switzerland and Belgium where the demise of their two national airlines -Swissair and Societé Anonyme Belge d'Exploitation de la Navigation Aérienne (SABENA) -was followed by smaller successor airlines: SWISS and SN Brussels Airlines. To maintain sizable proportions, this study is limited to Swissair -SWISS International developments. A later study will focus on the SABENA -SN Brussels Airlines developments.
This study is original in that it examines an alternative option to mitigate a sudden unplanned closure of all SAA's operational activities and its catalytic effect on the South African economy in the event that further funding for losses cannot be assured.
Another option, to simply rely on private sector and foreign airlines, to fill the gap which would be created by a sudden cessation of SAA's operations, would require a policy shift in the provision of scheduled air services by the government. This is, however, an area of future research.

Aim and objectives
The research objective relates to the study of the closure and restart as an option for the development of a sustainable South African national airline.
Two well-established national flag carriers, Swissair and SABENA, experienced unsurmountable financial difficulties for some time prior to the general aviation downturn immediately following the terrorist attacks of 11 September 2011. However, both airlines' operations were grounded before financial rescue packages facilitated their regional subsidiary airlines to take over some of the holding company's operations (European Commission Directorate-General for Mobility and Transport [DG Move] 2003:14). These two cases represent the most high-profile bankruptcies in European aviation history (DG Move 2003:43).
This article considers the demise and restart of former national (flag) carrier Swissair through the subsequent startups of SWISS International as an example to be considered for SAA's circumstances.

Research method: Literature study
The study identifies three distinct phases: • Firstly, the financial distress of the SAirGroup (the holding company of Swissair) and the salient factors contributing to the demise of Swissair and lessons learnt are identified. The termination of a cash-pooling banking facility, which increased liquidity requirements, is considered. The causes for the cessation of flight operations (lack of liquidity and inadequate preparation for the bankruptcy protection) are analysed. • Secondly, the transition from Swissair to SWISS (previously known as Crossair and SWISS International Airlines) is analysed. Seven alternative transitional restructuring plans as well as the liquidity crunch, which caused Swissair's grounding of flight operations, are examined. The financial support (by both the state and the private sector) for the restart of Swissair's flight operations a few days following Swissair's grounding is determined. This included some of Swissair's assets, routes, staff and flight operations. SWISS' post-restart losses are identified from the perspective of sustainability. • Thirdly, the undertakings to ensure a Swiss-based airline, the salient commercial and structural elements of the Lufthansa's takeover of SWISS, are identified. SWISS' profits following its association with Lufthansa are determined.
The study is based on the following salient sources: • The causes and reasons for the distress and failure of Swissair were identified from official reports by inter alia the Swissair Liquidator, Heinrich (2003a), Ernst & Young (2003) as well as DG Move (2003). Salient economic considerations during this phase were identified from the analyses of Suen (2002) and Arndt (2003, 2004). • Swissair's grounding, restart and transition into a successor airline SWISS were extensively described in official reports on the role of the Swiss Federal Council by Leuenberger and Huber-Hotz (2001), Béguel (2002), Federal Council of the Swiss Government (n.d.), SWI (swissinfo.ch -Swiss Broadcasting Corporation) (2001) and economist Ehrbar (2011). The article reflects the contents of the original German reports in English. • Details of Lufthansa's takeover of SWISS were ascertained from inter alia ABN AMRO (2005), Regan and Armitage (2005), Credit Suisse, First Boston and UBS AG (2005) and Deckstein (2005), whilst state aid elements were discussed by Zurkinden and Scholten (2004).
Official reports and published articles were identified through online and Science Direct searches. Reports in German were translated into English by the author and reflected in English in this article. The content of the abovementioned reports were cross-checked with press releases to confirm their accuracy and timelines.

Ethical considerations
This article followed all ethical standards for research without direct contact with human or animal subjects.

Swissair and SABENA
During 2001, the operations of two well-known flag carriers, Swissair and SABENA, were grounded. Swissair became bankrupt in October 2001 and SABENA became bankrupt in November 2001. Both these airlines were in severe financial distress for some time prior to the general downturn in air transport demand, which resulted from the terrorist attacks of 11 September 2001. The financial failures of the airlines were related. Swissair's holding company, SAirGroup, held 49% of SABENA and was committed to increase its shareholding to 85% (Langendries 2003:58). The Belgium State, in turn, owned a 3.3% share in the capital of SAirGroup and had an option to exchange the remaining 15% held in SABENA for an additional 2.2% stake in the SAirGroup (Langendries 2003:8). Business integration between the SAirGroup and SABENA was facilitated by an airline management partnership (AMP) which envisaged that the SAirGroup would become SABENA's majority shareholder (Langendries 2003:58).

Strategic positioning of SAirGroup
In 1996, Swissair's corporate structure was restructured by the introduction of a holding company, SAirGroup (Meyer 2016:99).
Swissair lacked the scale of the three European global alliance leader airlines (Lufthansa, British Airways and Air France) and its small home market (Switzerland) was inadequate to support the scale of a 'major' international airline (DG Move 2003:14).
Instead of joining one of the major alliances, Swissair opted to create two Swissair-led and equity-based alliances. These alliances were: • Qualiflyer (with smaller non-aligned European flag carriers as members) (Knorr & Arndt 2003:7, 2004 • the European Leisure Group (charter airlines) (Knorr & Arndt 2003:7, 2004. In 1998, SAirGroup adopted the 'hunter strategy' to buy several European airlines to:  Suen 2002). The investments and support there of were financed by increased debt levels (Suen 2002). SAirGroup was contractually committed to the survival of its unprofitable second-tier airline investments, and became vulnerable to their financial performance. Swiss also did not have sufficient financial resources to absorb external shocks (Suen 2002:1 Wüthrich 2003:2). However, contrary to its strategy, many of the SAirGroup's airline acquisitions targeted distressed airlines in the major EU markets of Germany, France and Italy. The SAirGroup also accepted near full financial responsibility for the financial obligations of its airline investments (Knorr & Arndt 2004:122).
SAirGroup also increased the group's revenue of ancillary services by the grant of preferred or exclusive supplier status from its airline investments. However, the approach dramatically raised the costs of the exit from these investments. Moreover, Swissair supported many of its financially struggling partners with huge capital injections, both to keep the Qualiflyer alliance viable and to protect its aviation-related businesses (Knorr & Arndt 2004:121).
SAirGroup's maximum shareholding in European airlines was limited to 49.9% as a result of the European Community (EC) Ordinance (O 2407/92 of 23 July 1993), which required that the majority of the direct or indirect shareholders of an EU-based airlines must be citizens of EU member states in order to be issued with an aircraft operating permit (Wüthrich 2003: 2). This implied that Swissair could not acquire a majority shareholding in any EC-licenced airline without losing the operating permit of such an airline. Although Swissair formally complied with the EU Ordinance, in reality it circumvented this regulation (Wüthrich 2003:2).
The SAirGroup implemented complex structures, containing call/put options, portage solutions, guarantee commitments as well as multiple tiered and opaque intermediate financing to exercise direct management control, majority interest and the assumption of full financial and commercial risk, despite communication to outsiders that only minority interests were involved (Ernst & Young 2003:2). Call/put options and guarantees issued by the SAirGroup resulted in substantial cash payments to be made by the SAirGroup (Ernst & Young 2003:2). Full consolidation of the financial results of significant subsidiaries was not done, as their consolidation would have confirmed the existence of effective control. As a result, the SAirGroup's financial statements for 1999 and 2000 did not present a fair and reasonable economic and financial situation of the SAirGroup as required by accounting standards (Ernst & Young 2003:2). In particular, French subsidiaries, LTU in Germany and SABENA in Belgium, were not consolidated despite effective control, economic benefits and risks which vested in the SAirGroup (Ernst & Young 2003:3). Over the 2 years (1999 and 2000) the off-balance sheet commitments increased by Swiss Franc (CHF, from the Latin Confoederatio Helvetica Franc) 5bn (Ernst & Young 2003:2). In particular, the existence of CHF 1.1bn of newly issued guarantees was not disclosed as contingent liabilities (Ernst & Young 2003:3). The investment of SAirLines was overvalued by CHF 1bn to CHF 1.5bn (Ernst & Young 2003:3). The unconsolidated financial statements of SAirGroup for 2000 would have reflected a share capital deficit had these been fairly presented (Ernst & Young 2003:3). At 31 December 2000, SAirGroup noted concern of over-indebtedness (Ernst & Young 2003:3). Ernst & Young (2003:3) noted that the SAirGroup's ability to continue as a going concern was already questionable at the time that both 1999 and 2000 financial statements were prepared and formally approved by the Board of Directors (

Earnings before income tax by business unit of the SAirGroup for 2000
The composition of the SAirGroup's earnings before interest and tax is presented in Table 1.
One-off charges of CHF 2714m constituted 83% of the loss of CHF 3256m from SAirLines Investments whilst 24% (CHF 796m) was attributed to their operating losses for the year. CHF 1337m or 41% of the loss from SAirLines Investments was caused by recognising the contractual liabilities for underwriting losses of these investments for the next 3 years. The detailed composition of the amounts is presented in Tables 2-4.

Abandonment of the 'hunter strategy'
In was not provided for in SAirGroup's business plan nor in its annual budgets. Cumulatively, the funds invested in airlines significantly exceeded the amounts approved by the Board of Directors. Airlines that were acquired required financial restructuring for which the liquidity requirements increased excessively ('over-proportionally'). To reduce the steadily growing financing gap, divestments of CHF 2.7bn were undertaken. However, these were of temporary nature of sale and leaseback transactions involving the group's own aircraft fleet. This implied that an initial improvement of cash flow and finances was followed by corresponding cash outflow through high lease payments in subsequent years. Within 2 years (1999 and 2000), the off-balance sheet commitments increased by CHF 5bn (Ernst & Young 2003:2). The negative impact of the interruption of flights on North Atlantic routes and subsequent downturn in passenger

Restructuring costs -466
Reduction in the asset values -120 Contractual liabilities for underwriting losses for the next 3 years -1337 Put options -410 Others -90

Less reclassification 215
Total provisions for SAirLines airline investments -2208 Impairment loan associated companies -506

Total One -time charges for SAirLines airline investments -2714
Source  (Ehrbar 2011:3). A federal guarantee support of CHF 1bn was requested to ensure liquidity, solvency until balance sheet restructuring could take place, at which time a recapitalisation of up to CHF 4bn of equity was required. However, the Federal Council required a proposal for restructuring before financial support could be considered (Federal Council of the Swiss Government n.d.:1; Ehrbar 2011:3).
The Federal Council in principle accepted public participation in a recapitalisation (referred to as Swissairsanierung) on a temporary basis, on the following conditions: • The funding should be part of an overall restructuring plan to ensure the long-term viability of Swissair (Federal Council of the Swiss

Termination of cash-pooling facility caused an increas in SAirGroup's liquidity requirement
On 10 September 2001, shortly before the grounding of Swissair, the UBS Group AG (UBS) unilaterally terminated its contract for cash management (zero-balancing and cashpooling facility) for SAirGroup with effect from 30 October 2001 (Ehrbar 2011:4). From 24 September 2001, transactions over CHF 5m had to be pre-arranged, and from 26 September 2001 any 'overnight exposure' was prohibited, and all accounts of the pool members had to be manually balanced (Ehrbar 2011:4). This massively increased the liquidity requirements of the system as well as the administrative burden (Ehrbar 2011:4). Requests for a 'daylight overdraft' in excess of the credit limit were rejected and on 28 September 2001, the sweeping mechanism (to balance the all group companies at the end of the day) was abolished without notice (Ehrbar 2011:4). The UBS Group AG demanded that payments would only be accepted on a credit balance basis, which implied that the cash-pooling facility was effectively cancelled and transfers had to be initiated in advance (Ehrbar 2011:4). This implied that group companies were no longer able to make any payments without the necessary money being available in their company bank accounts (Ehrbar 2011:4). The increased liquidity requirements caused by the termination of the cashpooling facility caused major financial distress as SAirGroup's group-wide liquidity requirement for cash immediately increased by about CHF 250m (Ehrbar 2011:4).

Filing for bankruptcy protection
SAirGroup and Swissair filed for bankruptcy protection (a moratorium against payment to creditors) on 02 October 2001 (Lechner 2002:977). Operations of certain branches were to be liquidated whilst other divisions, such as flight services, were to be restructured (Lechner 2002:977). A day before the filing of bankruptcy protection, the SAirGroup sold the majority shareholding of its subsidiary, Crossair, to two Swiss banks: UBS and the Credit Suisse Group AG (CS) (Lechner 2002:977). The intention was that Crossair would continue the flight operations previously operated by Swissair until the reorganisation plan would be approved by creditors (Lechner 2002:977).
Several foreign bank creditors of Swissair initially considered the transaction as a preferential transfer under Swiss bankruptcy law (Lechner 2002:977). The reorganisation plan was eventually approved by the creditors (Lechner 2002:977 Ernst & Young's (2003:4) formal ex post facto finding was that the grounding of Swissair was caused by the filing of bankruptcy protection (debt moratorium) on 01 October 2001, which was not prepared on an appropriate basis and timely (Lechner 2002:977). However, the announcement of the filing for a moratorium (bankruptcy protection) caused uncertainty on the recovery of amounts owed to commercial creditors, who then required immediate payment and cash on delivery for ongoing supplies to operate air services (Lechner 2002:977 • None of the Board of Directors had any experience in the operational management or in the monitoring of an international airline (Heinrich 2003a:4). • With the exception of the full-time Office of the President, SAirGroup's Board of Directors occupied senior leadership positions in other large enterprises (banks, insurance and industrial companies) or high-ranking political positions (Heinrich 2003a:4, 5). • The Board of Directors and management relied largely on outside parties (the federal government, banks and consultants) rather than the adoption of essential restructuring measures timely, nor did the directors prepared themselves for the crisis scenarios (Heinrich 2003a:4). • Key persons were not familiar with the legal requirements pertaining to the critical conditions and did not take the necessary timely measures (Heinrich 2003a:4). • The filing for a bankruptcy moratorium was not prepared timely or appropriately (Heinrich 2003a:4).

State and private sector financial supports for the takeover of Swissair fleet and air routes were taken over by Crossair
Crossair, a subsidiary of SAir Holdings, took over the Swissair fleet and intercontinental air routes under the terms of a Federal Decree issued on 07 November 2001 as part of the restructuring plan that had been agreed earlier to ensure that Switzerland would retain a national airline with intercontinental connectivity (Zurkinden & Scholten 2004:220, 221).
The Swiss Confederation and private sector institutions financially supported the transition from Swissair to Crossair.
The Swiss Confederation provided the following financial support: • An investment of CHF 600m in support of Crossair's capital increase of CHF 2561m (Zurkinden & Scholten 2004:221).
• Loans to Swissair for CHF 1.450m, comprising an interestfree loan of CHF 450m on 05 October 2001 to assure flight operations until 28 October 2001 (Zurkinden & Scholten 2004:221) as well as another loan amount of CHF 1bn to allow flight operations to be maintained, to facilitate such operations to be transferred to Crossair as the new national airline (Zurkinden & Scholten 2004:221). It was agreed that if full respayment was not possible following the sale of Swissair's assets, the Swiss government would surrender the unsecured portion of its loan (Zurkinden & Scholten 2004:221

The transition from Swissair to SWISS
An overview of the key events in the transition from Swissair to SWISS is outlined in Table 5. Their evaluation is relevant for the development of such transition plans. Their context and chronological order are presented in Table 6.

Phase 2: The transition to successor company SWISS (previously known as Crossair and SWISS International Airlines)
The Federal Council motivated its financial support for the establishment of a new Swiss airline on the following: • to safeguard Switzerland's international connectivity with the rest of the world for Swiss citizens • to assure the availability of aviation infrastructure in Switzerland • to prevent a large number of job losses, which would have resulted from a collapse of Swissair (ABN AMRO 2005:7).
The capital requirements for the new SWISS International Air Lines (Crossair) was estimated to be CHF 3040m as set out in Table 7.
SWISS' three strategic objectives were: • To downsize its aircraft fleet in order to establish a sustainable and profitable route network. • The focus of its long-haul flight operation and the European air services would no longer have a Europeanwide scope but would be primarily geared towards the Swiss market and visitors to Switzerland. • Its cost structure (for flight operations and administration) needs to significantly reduce.

Shareholding in recapitalised SWISS
The percentage shareholding in SWISS is presented in Table 8.

Profitability of SWISS
SWISS was however not a profitable airline. It incurred losses of CHF 1803m for 3 years (2002)(2003)(2004).  The emergence of project 'Swiss Air Lines', which proposed a merger of Swissair and Crossair with an overall reduced route network, a fleet reduction from 152 to 136 aircraft [11 300-9900 seats], job cuts and integration of Gate Gourmet and Swiss technology. However, by 22 September 2001, the immediate liquidity requirements of this plan increased to CHF 1.5bn (Jud 2007 Swissair's commercial creditors (for fuel, ground handling and airports), on whose services Swissair's continued operations relied, required immediate settlement of outstanding invoices and cash on delivery because of uncertainty on the recovery of amounts owed. Pilots were initially provided with cash to pay fuel and landing fees, but later the fuel suppliers refused to refuel aircraft, which resulted in most flights being 'delayed until further notice' (Ehrbar 2011:10). The increase in liquidity requirements from suppliers, the risk of creditor preference and the loss of the UBS cash pooling effectively grounded Swissair's operations (Ehrbar 2011:10, 11). UBS assumed that the daily liquidity requirements would not increase and was not prepared to release the purchase price of the 70% interest in Crossair (proposed by CS) to relieve Swissair's liquidity problem until a new option or license agreement to acquire the 'Swissair' brand and legal formalities could be resolved (Ehrbar 2011:13

Percentage profit (Loss) (EBT) margin Annual profit (Loss) before tax in CHF millions
Year Profit (Loss) before tax (EBT) % Margin profit (Loss) before tax (EBT) • Upon securing full air traffic rights, Lufthansa would acquire 100% of SWISS directly (Credit Suisse et al. 2005:3).
Lufthansa limited its offer to a maximum of €265m to Swiss' major shareholders' €45m to individual investors (Done 2008 The Lufthansa and SWISS 'Integration Agreement' ensured the 'fair development' of the Zurich hub, the scope of its long-haul fleet, the brand 'SWISS', and the continued existence of SWISS as an international airline based in Switzerland (Swisscom.com 2005). Furthermore, an independent Swiss foundation was established for a period of 10 years to nominate a member of the Lufthansa supervisory board and two members of the SWISS Board of Directors to preserve the Swiss air traffic infrastructure over the long term (Swisscom.com 2005).
The takeover envisaged significant synergies both the revenue and on the cost side, of about €160m (approximately CHF 250m) per year from 2007 onwards (Swisscom.com 2005).

Commercial arrangements between SWISS and Lufthansa
The salient commercial arrangements between SWISS and Lufthansa required that SWISS would practically remain an independent airline, with its management and base of operations in Switzerland, its own fleet and crew, and managed within the Lufthansa system as a profit division. SWISS would retain its own brand, develop its strengths and expand its base for the Swiss market (Done 2008). Much of SWISS' long-haul network would remain intact, but SWISS would cede important functions like future route planning and the processing of frequent flyer data to Lufthansa, and Zurich would become the third major hub for Lufthansa after Frankfurt and Munich (Deckstein 2005;Done 2008).
By 2007, the SWISS fleet increased by five more long-haul and seven more short-haul aircraft and the workforce expanded by 10%. Passenger volumes rose by one-third, whilst its load factor increased by 5% -80%. Network capacity in ASKs increased by 14% (Done 2008).

Financial success under Lufthansa
SWISS' inclusion onto Lufthansa's large European network turned SWISS into a profitable airline, as shown by the data in Table 10 and Figure 2.
The SWISS profitability under Lufthansa control was ascribed to the following factors: • The integration of SWISS into the Lufthansa Group was more successful than what was originally forecasted and was completed earlier than expected (SWISS 2007). • More synergies were generated by the merger than what was initially expected (SWISS 2007). • The partnership approach underpinned the sustainability of a team-oriented strategy (SWISS 2007).

Percentage profit (Loss) (EBT) margin Annual profit (Loss) before tax in CHF millions
Year Profit (Loss) before tax (EBT) % Margin profit (Loss) before tax (EBT) 571 561 • The SWISS business model consisted of its own brand identity built on its strengths and utilising the advantages of its geographic location (SWISS 2007). • The integration offered an expanded route network with more destinations and better connections, interlinked frequent flyer programmes and mutual lounge access, within the Lufthansa Group and Star Alliance networks (SWISS 2007).
SWISS and Lufthansa were successful in the creation of new jobs in Switzerland and the development of the Zurich hub. Consumer benefits included better services, whilst Switzerland benefitted from increased connectivity. Shareholders enjoyed higher levels of profitability (SWISS 2007).
Within the Lufthansa Group's strategy, SWISS remained an autonomous carrier with its own business management and headquarters based in Switzerland, with its own crew and fleet. The Zurich hub was to be developed in conjunction with the development of other Lufthansa hubs in Frankfurt and Munich (SWISS 2007).

Discussions of key findings
The non-implementation of key initiatives of SAA's January 2017 5-year turnaround strategy (Project Phakama) against the background of not achieving a sustainable turnaround (in circumstances of SAA's technical insolvency) poses a risk that SAA may not recover financially.
The transformation of SWISS (Crossair) as successor airline to Swissair provides an option to mitigate the risk and economic impact of a sudden liquidation of SAA. This would require a planned closure and restart (or carve-out) of viable operations by means of a smaller and more focussed successor stateowned airline along to continue essential and viable operations. South African Airways' remaining unviable operations should then be wound up and liabilities would be settled in a planned and coordinated manner by the government.
The SWISS/Swissair example, however, demonstrated serious pitfalls that need to be avoided, which require sufficient preparation before implementation.
The key findings of the study, within each of the three phases, are presented below and discussed within parentheses.

Phase 1: The financial distress of the SAirGroup
With regard to leadership, it was established that: • None of the directors had operational management or monitoring experience of an international airline. (As a result, the board was not in a position to gauge the risks of overexpansion and the exposure because of the circumvention of ownership and control requirements as well as the contractual commitments and guarantees to support losses and restructuring of airline investments.) The Swissair liquidator concluded that: • Swissair expanded too rapidly funded by debt instead of shareholders' equity. (Airline expansion is associated with start-up losses, which have to be within the financial resources of the company. Funding for expansion through debt increases the business risk and exposes the company to decisions of bankers.) • The rules of corporate governance were inadequate. (The combination of CEO and chairperson in the same person weakened the effective oversight over the executive management.) • The dominant CEO always believed the government would provide financial assistance to save the company from liquidation and consequently did not develop an emergency contingency plan as the 'worst-case scenario' of liquidation was not expected. (The CEO's belief on external government financial aid stood in the way of remedial action to be taken timely.) • The Swissair management did not sort out its financial problems earlier. (Once the 'hunter strategy' expansion strategy was abandoned, progressive and timely steps should have been taken and implemented to resolve the company's financial problems including funding plans based on realistic financial forecasts.) The filing for bankruptcy protection was not planned properly. Swissair's liquidation could have been avoided with better preparation. (It was unrealistic to assume that service suppliers would continue to supply fuel, ground handling and airport services without outstanding amounts being paid and credit terms being established. It is evident that significant additional cash resources were required to meet the rise in liquidity requirements. Interim funding is required to fund losses for the periods required for regulatory approvals by outside regulatory authorities for the transfer of air traffic rights, licensing of operational and technical aspects, access to air traffic rights and flight operations. This requires interim funding to bridge the time requirements of processes).
Internally developed restructuring measures were not sufficient to strengthen Swissair's liquidity and equity • Funding needs to be part of an overall restructuring plan to ensure the airline's long-term viability.
• The private sector should lead the development of the restructuring plan. • All stakeholders, banks, the private sector, creditors and shareholders, staff and unions were to participate and support the restructuring on an equal basis. • The plan must serve the public interest. • Government's commitment for financial support would only be on a temporary basis.)

Phase 3: The transition from Swissair to SWISS
The two Swiss banks (UBS and CS) bought the majority shares of a SAirGroup subsidiary, Crossair, from the SAirGroup a day before filing for bankruptcy protection, in terms of the Phoenix Term Sheet (one of the seven alternative transition restructuring plans) so that Crossair could continue the Swissair's flight operations until creditors approved a reorganisational plan.
However, the announcement of the filing of bankruptcy protection resulted in demands for immediate payment and cash on delivery for ongoing supplies to operate air services, which was beyond Swissair's liquidity.

Phase 3: Lufthansa's takeover
Lufthansa launched a phased takeover offer of Swiss International Air Lines Ltd with the objective to achieve a full takeover of Swiss. The transaction was phased to accommodate renegotiation of ownership and control requirements of bilateral air services treaties for foreign aviation traffic rights.
SWISS was not absorbed into Lufthansa, as SWISS remained an independent airline with its own brand, management and base of operations in Switzerland, its own fleet and crew, and operated within the Lufthansa system as a profit division. However, certain important responsibilities like future route planning and the processing of frequent flyer data were ceded to Lufthansa.
Lufthansa's offer price only represented about one-tenth of the Swiss Confederation's and Canton Zurich's investment; it was accepted on the basis that other strategies would have put more jobs at risk and the Federal Council could not afford imminent investment requirements to upgrade equipment and aircraft. Measures to preserve the Swiss air traffic infrastructure and a Switzerland-based operating airline included the right to propose a member of the Lufthansa supervisory board and two members of the SWISS Board of Directors. Government's commitment for financial support was from the outset required to be on a temporary basis, which facilitated its privatisation through the agreement with Lufthansa.
SWISS' inclusion onto Lufthansa's large European network turned SWISS around and resulted in continual profits from 2006 to 2017 as a result of synergies, an expanded route network with more destinations and better connections, interlinked frequent flyer programmes and mutual lounge access, within the Lufthansa Group and Star Alliance networks.
(This was unlike to the smaller SWISS stand-alone network.)

Conclusion Phase 1: The period of financial distress
The non-implementation of certain key initiatives of SAA's turnaround strategy poses a risk that SAA may not recover financially. A planned closure and restart (or carve-out) of a smaller and more focussed successor state-owned airline is a better alternative than a sudden service interruption of SAA and related economic impact.
The establishment of SWISS International Air Lines (formally Crossair) as a successor airline to Swissair's liquidation represents a real-life example of closure and restart (or carveout) that can be applied to SAA's viable operations to establish a smaller and more focussed successor state-owned airline as an alternative to a sudden liquidation of SAA. Airline expansion should be paced and not be fully reliant on debt funding; rather, it should rely on shareholders' equity. Normal corporate governance rules need to apply, and funding plans based on realistic financial forecasts need to be considered by the Board of Directors. The airline should not rely on government financial assistance and develop and implement contingency plans and remedial measures to make a meaningful difference at first opportunity in order to rapidly improve cash flow and solvency to resolve the company's financial problems.
Phase 2: The transition to a smaller and more focussed successor state-owned airline Any filing for bankruptcy protection or sudden restructuring needs to be planned in advance. An announcement of bankruptcy protection increases liquidity requirements for an airline as service suppliers (for fuel, ground handling, airport and other services) require outstanding amounts being paid, new supplies and services to be paid on delivery until new credit terms have been established. Therefore, sustaining air services within bankruptcy protection, following its announcement, requires higher levels of cash resources than before, when the airline enjoyed normal credit terms. The assumptions for cash flow forecasts need to be revised and re-modelled as normal credit terms would no longer remain in place.
Interim bridging funding is required to support losses until regulatory approval for the transfer of flight operations, licencing of operational and technical aspects and access to air traffic rights have been procured.
It is preferable that air services are not interrupted in the transition phase. The grounding of the fleet results in stranded passengers, immediate refund claims, cancellation of codeshare agreements and lower patronage for future flight bookings. A rapid transition to lower number flights also requires the facilitation of rebooking of passengers on alternative flights through planned crisis management.
The government may prescribe conditions for the provision of financial support. The purpose of providing financial support needs to be clarified as well as the period over which such support would be available or maintained. Even successful airlines require additional capital to update product offerings and systems and to replace obsolete assets.
During the transition phase, the business model, aircraft, fleet and network size need to be reduced sufficiently to prevent the need for later scale-down of operations and employees in a continual cycle of restructuring plans. This requires conservative assumptions of demand as a result of passenger expectations that flights may not be operated according to previous schedules or levels of frequencies.
Financial projections and funding plans need to be modelled on realistic and conservative assumptions to determine the cost of transformation, losses that would be incurred during the implementation phase and levels of sustainable debt equity that can be accommodated.
The required capital would have to be determined and the role of government and other financiers needs to be clarified. Funding should preferably be channelled through a listed company (a share issue privatisation [SIP]), which would facilitate trading in the company's shares, if successful.

Phase 3: Lufthansa's takeover
Unlike SWISS' losses, its inclusion into Lufthansa's large European network benefitted SWISS, resulting in an immediate turnaround and continual profits from 2006 to 2017. However, SAA operates a relatively larger network than its immediate neighbours. Therefore, the same benefits of network scale are not available to SAA from alignment with airlines based in neighbouring countries (as was available to SWISS from Lufthansa). This implies that the planned closure and restart (or carve-out) of successor stateowned airline for SAA needs to rapidly result in a much smaller and more focussed profitable airline. South African Airways cannot be scaled-up in the short term as there is not a larger airline investor with a larger network geographically close to South Africa that could provide significant incremental passenger feed (demand) to generate profitability through growth. Furthermore, access to air traffic rights and ownership and control rules within the African aviation context are not as liberal as is the case within the European Community, which will also limit the synergies that may result from a similar takeover within the African context.