WEBVTT 00:00:00.000 --> 00:00:01.659 You know, usually when we talk about corporate 00:00:01.659 --> 00:00:06.799 collapses on this show, we're talking about risky 00:00:06.799 --> 00:00:09.519 tech startups or maybe a fraud -riddled scheme 00:00:09.519 --> 00:00:11.699 like Enron. Right, where the whole thing was 00:00:11.699 --> 00:00:14.220 a mirage from the start, a house of cards. Exactly. 00:00:14.240 --> 00:00:16.679 We don't usually talk about national institutions 00:00:16.679 --> 00:00:20.160 that were literally, and I mean literally, nicknamed. 00:00:20.589 --> 00:00:23.030 the flying bank. That's what makes the Swiss 00:00:23.030 --> 00:00:25.809 Air story so, so disturbing. It wasn't a fly 00:00:25.809 --> 00:00:27.750 -by -night operation. It wasn't some dot -com 00:00:27.750 --> 00:00:31.050 bubble burst. For 70 years, this airline was, 00:00:31.190 --> 00:00:33.250 for all intents and purposes, the gold standard. 00:00:33.469 --> 00:00:35.850 It had liquidity that would make a sovereign 00:00:35.850 --> 00:00:38.969 nation jealous. It had hidden assets and a reputation 00:00:38.969 --> 00:00:42.590 for safety that was practically a religion in 00:00:42.590 --> 00:00:45.869 Switzerland. And then in October 2001, it just 00:00:45.869 --> 00:00:49.590 stopped. It vaporized. And that's the image I 00:00:49.590 --> 00:00:51.710 really want to start with today. October 2nd, 00:00:51.710 --> 00:00:54.049 2001, you have captains in the cockpit, ready 00:00:54.049 --> 00:00:56.210 to push back from the gate. Passengers are buckled 00:00:56.210 --> 00:00:58.969 in and suddenly the fuel trucks just drive away. 00:00:59.130 --> 00:01:01.030 Because their corporate credit cards were declined. 00:01:01.130 --> 00:01:03.789 Can you imagine? It's unbelievable. A company 00:01:03.789 --> 00:01:06.329 that was once worth billions couldn't pay for 00:01:06.329 --> 00:01:09.780 its own jet fuel. Right. So our mission today 00:01:09.780 --> 00:01:12.819 is to figure out how that happens. How do you 00:01:12.819 --> 00:01:15.340 go from being the flying bank, the very symbol 00:01:15.340 --> 00:01:18.340 of Swiss stability, to being grounded by a fuel 00:01:18.340 --> 00:01:21.200 supplier in a matter of, what, a few years? A 00:01:21.200 --> 00:01:23.159 few disastrous years, yeah. Was this just 9 -11? 00:01:23.560 --> 00:01:26.560 Was it just a run of bad luck? Or was this a 00:01:26.560 --> 00:01:29.799 case of, I don't know, corporate suicide? I'd 00:01:29.799 --> 00:01:31.980 argue it's a master class in hubris. I really 00:01:31.980 --> 00:01:34.500 would. It's about what happens when you believe 00:01:34.500 --> 00:01:36.939 your own marketing so much that you completely 00:01:36.939 --> 00:01:40.439 ignore basic economic geography. Wow. It is the 00:01:40.439 --> 00:01:42.659 story of the Icarus of the Alps. It flew too 00:01:42.659 --> 00:01:44.739 close to the sun. Okay. So let's unpack that. 00:01:44.799 --> 00:01:47.359 Let's look at the flying bank era first. Because 00:01:47.359 --> 00:01:49.719 to understand the crash, you really have to understand 00:01:49.719 --> 00:01:51.980 just how high they climbed. So source materials 00:01:51.980 --> 00:01:53.879 give this sense that Swissair wasn't just an 00:01:53.879 --> 00:01:56.439 airline. Oh, no. It was a diplomatic tool. It 00:01:56.439 --> 00:01:58.659 was a symbol of the nation itself. So where does 00:01:58.659 --> 00:02:00.939 that begin? Absolutely. To get the full picture, 00:02:01.000 --> 00:02:04.019 we have to go all the way back to 1931. The company 00:02:04.019 --> 00:02:06.420 forms from a merger of two smaller entities, 00:02:06.900 --> 00:02:10.900 Bel Air and Ad Astra Aero. Okay. Now, context 00:02:10.900 --> 00:02:13.460 here is everything. Most European flag carriers 00:02:13.460 --> 00:02:15.979 at this time are basically government projects. 00:02:16.360 --> 00:02:18.900 Right. State -sponsored. Totally. They are funded 00:02:18.900 --> 00:02:22.379 by the state to project power. France, Britain, 00:02:22.639 --> 00:02:25.560 Germany, they're just pouring state money into 00:02:25.560 --> 00:02:29.120 aviation. But Swiss Air? It was different. How 00:02:29.120 --> 00:02:30.819 so? They didn't take the government handout. 00:02:31.020 --> 00:02:33.460 Not at first, no. The founders, Bal Zimmerman 00:02:33.460 --> 00:02:35.780 and Walter Mittelholzer, they didn't receive 00:02:35.780 --> 00:02:37.759 any subsidies in those early days. Which must 00:02:37.759 --> 00:02:41.120 have been tough. It was. But that lack of a safety 00:02:41.120 --> 00:02:43.379 net, it forced them to be incredibly aggressive 00:02:43.379 --> 00:02:45.680 on technology. I mean, if you don't have a government 00:02:45.680 --> 00:02:47.759 checking account to fall back on, you have to 00:02:47.759 --> 00:02:49.759 actually be better than the competition to survive. 00:02:50.120 --> 00:02:52.180 Which brings us to the Lockheed Orion purchase 00:02:52.180 --> 00:02:54.819 in 1932. I was reading about this and it seems 00:02:54.819 --> 00:02:56.780 like such a pivotal moment for their mindset. 00:02:57.000 --> 00:02:58.860 Oh, it's huge. It's almost like a tech startup 00:02:58.860 --> 00:03:01.259 buying the most expensive server rack available 00:03:01.259 --> 00:03:03.860 just to completely blow the competition away 00:03:03.860 --> 00:03:06.240 on speed. That's a great analogy. It was a massive 00:03:06.240 --> 00:03:08.979 gamble. The Orion was an American plane. And 00:03:08.979 --> 00:03:12.280 you have to remember, Europe was very, very protectionist 00:03:12.280 --> 00:03:14.979 in the 1930s. You flew planes built on your own 00:03:14.979 --> 00:03:18.159 continent. You flew European planes. But Swissair 00:03:18.159 --> 00:03:20.960 bought these American single engine planes for 00:03:20.960 --> 00:03:25.620 one reason. They were fast. Unbelievably fast 00:03:25.620 --> 00:03:27.639 for the time. The express line, right? Exactly. 00:03:27.639 --> 00:03:31.069 The express line. Zurich, Munich, Vienna. They 00:03:31.069 --> 00:03:33.830 were so fast that Lufthansa was, well, they were 00:03:33.830 --> 00:03:36.210 effectively humiliated. Humiliated how? Like 00:03:36.210 --> 00:03:38.469 actually left in the dust? Well, yeah. I mean, 00:03:38.469 --> 00:03:41.389 imagine you're the German national carrier, the 00:03:41.389 --> 00:03:43.930 pride of German engineering, and this little 00:03:43.930 --> 00:03:46.849 Swiss upstart is just flying circles around you 00:03:46.849 --> 00:03:48.990 with American metal. Wow. It actually forced 00:03:48.990 --> 00:03:51.310 the German aviation industry, specifically Heinkel, 00:03:51.389 --> 00:03:54.210 to develop the Heinkel He 70 just to try and 00:03:54.210 --> 00:03:56.930 keep up. So you have Swiss Air driving innovation 00:03:56.930 --> 00:03:59.710 across the entire continent just by existing. 00:04:00.270 --> 00:04:03.009 So right from the start, their DNA is, we will 00:04:03.009 --> 00:04:05.550 pay for the best tech to be faster and better 00:04:05.550 --> 00:04:08.090 than the neighbors. Precisely. And that premium 00:04:08.090 --> 00:04:11.189 mindset, it extended to the people, too. Which 00:04:11.189 --> 00:04:14.669 brings us to the story of Nellie Diner in 1934. 00:04:14.830 --> 00:04:17.829 The first flight attendant in Europe? That's 00:04:17.829 --> 00:04:20.459 an amazing piece of history. It is, but you have 00:04:20.459 --> 00:04:22.379 to look at the context. This wasn't just about 00:04:22.379 --> 00:04:24.660 service. This was marketing, pure marketing. 00:04:24.860 --> 00:04:27.300 She became a celebrity almost instantly. She 00:04:27.300 --> 00:04:29.680 was nicknamed the Angel of the Skies. So she 00:04:29.680 --> 00:04:32.639 represented this new, modern, civilized way to 00:04:32.639 --> 00:04:35.120 travel. That's it. She was the face of that idea. 00:04:35.339 --> 00:04:37.319 But her story also highlights the other side 00:04:37.319 --> 00:04:39.519 of that coin, doesn't it? It was glamorous, sure, 00:04:39.620 --> 00:04:41.920 but it was incredibly, incredibly dangerous. 00:04:42.160 --> 00:04:44.579 It was tragic. She died in a crash near Vermling 00:04:44.579 --> 00:04:48.360 in Germany on July 27, 1934. And get this, she 00:04:48.360 --> 00:04:51.199 had only flown 79 flights. Only 79. What was 00:04:51.199 --> 00:04:53.879 the cause? Material fatigue. The wing of the 00:04:53.879 --> 00:04:57.439 plane, a Curtis Condor, just broke. It's a stark 00:04:57.439 --> 00:04:59.439 reminder that this golden age we look back on 00:04:59.439 --> 00:05:02.279 was built on very, very fragile technology. It's 00:05:02.279 --> 00:05:04.100 interesting, though, that despite that kind of 00:05:04.100 --> 00:05:07.399 tragedy, the brand just kept growing. And by 00:05:07.399 --> 00:05:10.959 1947, the structure of the company changes significantly. 00:05:11.160 --> 00:05:13.519 This is the post -war boom. This is the moment 00:05:13.519 --> 00:05:16.319 they truly become the national carrier. The government, 00:05:16.579 --> 00:05:18.579 you know, the federal government, the cantons, 00:05:18.579 --> 00:05:20.660 municipalities, and specifically the Swiss Federal 00:05:20.660 --> 00:05:24.160 Railways, they all buy in. Ah, so the state finally 00:05:24.160 --> 00:05:27.040 gets involved. They do. They acquire about 30 00:05:27.040 --> 00:05:30.139 .6 % of the shares. So now they have the official 00:05:30.139 --> 00:05:33.740 stamp of approval. And I assume a lot more capital. 00:05:33.860 --> 00:05:36.259 A lot more. And that capital is what allows them 00:05:36.259 --> 00:05:39.579 to look west. across the Atlantic, the New York 00:05:39.579 --> 00:05:42.100 route. The holy grail of aviation, even then. 00:05:42.300 --> 00:05:45.160 Absolutely. But in 1947, flying from Zurich to 00:05:45.160 --> 00:05:47.560 New York isn't exactly, you know, a direct flight 00:05:47.560 --> 00:05:49.600 with a movie and a nap. No, it's an odyssey. 00:05:49.600 --> 00:05:52.220 We're talking about a DC -4. It took nearly 21 00:05:52.220 --> 00:05:54.939 hours. 21 hours. Yep. You had to stop in Shannon, 00:05:54.980 --> 00:05:57.879 Ireland. Then you had to stop in Gander, Newfoundland 00:05:57.879 --> 00:06:01.399 to refuel. It was loud. It was vibrating constantly, 00:06:01.560 --> 00:06:03.740 but it was the bridge to the new world. It was 00:06:03.740 --> 00:06:06.689 a huge deal. And this is where the flying bank 00:06:06.689 --> 00:06:08.930 reputation really starts to solidify, isn't it? 00:06:08.949 --> 00:06:11.290 It's not just about the planes anymore. It's 00:06:11.290 --> 00:06:13.629 about their unique financial and geopolitical 00:06:13.629 --> 00:06:16.490 position during the Cold War. This is the key 00:06:16.490 --> 00:06:19.089 insight. You've nailed it. Switzerland is neutral. 00:06:19.660 --> 00:06:21.879 In a world that is completely polarized, divided 00:06:21.879 --> 00:06:24.720 between the U .S. and the Soviets, that neutrality 00:06:24.720 --> 00:06:28.439 is a massive commercial asset. How so? Well, 00:06:28.579 --> 00:06:31.360 while British Airways or Pan Am were restricted 00:06:31.360 --> 00:06:33.759 from flying into certain Soviet -aligned or non 00:06:33.759 --> 00:06:36.540 -aligned airspace, or maybe they struggled with 00:06:36.540 --> 00:06:38.220 landing rights in the Middle East because of 00:06:38.220 --> 00:06:40.000 political alliances. So they could go almost 00:06:40.000 --> 00:06:42.139 anywhere. Exactly. They were the neutral broker. 00:06:42.360 --> 00:06:44.779 They could connect east and west. So they opened 00:06:44.779 --> 00:06:47.680 these incredibly exotic and very lucrative routes 00:06:47.680 --> 00:06:50.699 to destinations. Africa, the Middle East and 00:06:50.699 --> 00:06:53.040 the Far East that others couldn't touch. So if 00:06:53.040 --> 00:06:56.180 you were a diplomat or a spy or a multinational 00:06:56.180 --> 00:06:59.779 businessman in the 50s and 60s. You flew Swissair 00:06:59.779 --> 00:07:02.459 because it was the connecting node for the world's 00:07:02.459 --> 00:07:04.339 elite. It was the one airline that could get 00:07:04.339 --> 00:07:07.600 you from, say, a tense capital in Africa to a 00:07:07.600 --> 00:07:09.920 financial hub in Europe without any political 00:07:09.920 --> 00:07:12.689 baggage. So they're charging premium fares on 00:07:12.689 --> 00:07:15.089 these exclusive routes. And at the same time, 00:07:15.089 --> 00:07:18.310 they have this culture of extreme thrift and 00:07:18.310 --> 00:07:20.589 careful asset management back home. That's the 00:07:20.589 --> 00:07:23.949 combination. That's the flying bank. Walter Birchtold, 00:07:24.089 --> 00:07:27.389 who took over as CEO in 1950, really crafted 00:07:27.389 --> 00:07:29.889 this image. He came from the railways, so he 00:07:29.889 --> 00:07:32.769 liked structure. He liked discipline. He's the 00:07:32.769 --> 00:07:35.189 one who brought in the modish marine blue uniforms, 00:07:35.310 --> 00:07:37.629 moving away from that old military look. And 00:07:37.629 --> 00:07:39.910 he introduced the slumberettes in first class. 00:07:40.350 --> 00:07:42.470 Slumberettes? What were they? They were basically 00:07:42.470 --> 00:07:45.629 these amazing sleeping chairs, fully reclining, 00:07:45.790 --> 00:07:48.709 modeled after the beds on American Pullman railway 00:07:48.709 --> 00:07:51.290 cars. Sleeping on a plane in the 1950s, that's 00:07:51.290 --> 00:07:53.839 some serious luxury. It was the absolute height 00:07:53.839 --> 00:07:56.319 of sophistication. But behind all that luxury, 00:07:56.459 --> 00:07:58.399 behind the scenes, they were just hoarding cash. 00:07:58.480 --> 00:08:01.579 They had immense hidden reserves, undervalued 00:08:01.579 --> 00:08:03.899 assets on the books. So they nicknamed the Flying 00:08:03.899 --> 00:08:06.720 Bank. It was actually true. Oh, yeah. By the 00:08:06.720 --> 00:08:09.639 1970s, financial analysts joked that Swissair 00:08:09.639 --> 00:08:11.480 was an investment bank that just happened to 00:08:11.480 --> 00:08:13.500 treat flying airplanes as a kind of expensive 00:08:13.500 --> 00:08:15.600 hobby. They cared more about the balance sheet 00:08:15.600 --> 00:08:17.360 than the flight sheet. That's a perfect way to 00:08:17.360 --> 00:08:18.980 put it. And that sounds great, right? Until the 00:08:18.980 --> 00:08:20.980 world starts getting violent. And the records 00:08:20.980 --> 00:08:23.680 show the 1970s were an absolute nightmare for 00:08:23.680 --> 00:08:25.600 them, security -wise. It seems like the flying 00:08:25.600 --> 00:08:27.850 bank became a target. It was a loss of innocence 00:08:27.850 --> 00:08:30.949 for the entire industry, really. But Swiss Air 00:08:30.949 --> 00:08:33.169 took some incredibly heavy hits. You had the 00:08:33.169 --> 00:08:36.889 1970 crash on the Tel Aviv route. A bomb. A bomb 00:08:36.889 --> 00:08:39.350 in the cargo hold. It had a barometric trigger. 00:08:39.730 --> 00:08:42.649 It detonated shortly after takeoff from Zurich. 00:08:42.830 --> 00:08:47.789 47 people died. A conveyor 990. Just gone. And 00:08:47.789 --> 00:08:49.990 then just a few months later, the Dawson's Field 00:08:49.990 --> 00:08:52.250 incident, which is like something out of a Hollywood 00:08:52.250 --> 00:08:55.529 movie. It's unbelievable. The PFLP, the Popular 00:08:55.529 --> 00:08:58.389 Front for the Liberation of Palestine, hijacked 00:08:58.389 --> 00:09:02.429 a Swiss Air DC -8 along with a TWA -707 and a 00:09:02.429 --> 00:09:06.210 BOAC VC -10. And flew them all to Jordan. Forced 00:09:06.210 --> 00:09:08.190 them to land in the Jordanian desert at this 00:09:08.190 --> 00:09:10.870 remote, abandoned airfield called Dawson's Field. 00:09:11.009 --> 00:09:13.669 They held the passengers hostage. negotiated 00:09:13.669 --> 00:09:15.909 for the release of prisoners, and then... They 00:09:15.909 --> 00:09:19.960 blew up the planes. Blew them up. On global television, 00:09:20.159 --> 00:09:22.919 it was this incredible spectacle of destruction. 00:09:23.139 --> 00:09:26.919 A Switzer plane just exploding in a fireball 00:09:26.919 --> 00:09:29.399 in the desert. There was also that bizarre kidnapping 00:09:29.399 --> 00:09:32.960 in Buenos Aires in 1973. The station manager. 00:09:33.240 --> 00:09:35.279 Yes. The Switzer representative in Argentina, 00:09:35.600 --> 00:09:38.559 Kurt Schmidt, was kidnapped by a leftist guerrilla 00:09:38.559 --> 00:09:40.679 group called the Montaneros. He was held for 00:09:40.679 --> 00:09:44.210 38 days. And this is where the bank. Part of 00:09:44.210 --> 00:09:46.389 their name comes back into play. Right. Because 00:09:46.389 --> 00:09:48.529 Swiss Air paid. They paid the ransom. We know 00:09:48.529 --> 00:09:53.110 how much. 12 .35 million Swiss francs. Wow. That 00:09:53.110 --> 00:09:55.470 is a staggering amount of liquid cash to just 00:09:55.470 --> 00:09:58.529 hand over in 1973. It is. And it proved two things. 00:09:58.629 --> 00:10:01.090 One, the world was becoming a very dangerous 00:10:01.090 --> 00:10:03.610 place for high profile Western symbols. And two, 00:10:03.889 --> 00:10:06.210 Swiss Air had the money to make those kinds of 00:10:06.210 --> 00:10:08.230 problems go away. They had the resources to weather 00:10:08.230 --> 00:10:11.309 these storms. For now. But money couldn't solve 00:10:11.309 --> 00:10:13.169 the huge structural problem that was coming. 00:10:13.259 --> 00:10:16.240 down the pipe in the 1980s and early 90s. Deregulation. 00:10:16.820 --> 00:10:18.899 The word that strikes fear into the heart of 00:10:18.899 --> 00:10:21.220 every comfortable monopoly. The end of the gentleman's 00:10:21.220 --> 00:10:23.919 club. That's what it was. For decades, European 00:10:23.919 --> 00:10:27.320 skies were rigged. It was all about high fares, 00:10:27.399 --> 00:10:29.980 protected routes, government sanctioned duopolies. 00:10:30.159 --> 00:10:33.059 So if you flew from London to Zurich. British 00:10:33.059 --> 00:10:35.299 Airways and Swiss Air basically agreed on the 00:10:35.299 --> 00:10:37.899 price. There was no real competition. It was 00:10:37.899 --> 00:10:40.399 a license to print money for the national carriers. 00:10:41.179 --> 00:10:43.740 Then the EU starts tearing down all those walls. 00:10:44.000 --> 00:10:47.080 They wanted competition. They wanted lower fares 00:10:47.080 --> 00:10:50.120 for consumers. And this suddenly exposes Swissair's 00:10:50.120 --> 00:10:53.809 biggest and maybe only Their size. They are a 00:10:53.809 --> 00:10:57.230 giant premium airline in a tiny country. Precisely. 00:10:57.230 --> 00:10:59.889 Switzerland has a population of, at that time, 00:10:59.929 --> 00:11:03.230 maybe 7 million people. You cannot support a 00:11:03.230 --> 00:11:05.889 global long -haul network just on that domestic 00:11:05.889 --> 00:11:07.929 base. It's impossible. You need to feed the beast. 00:11:08.090 --> 00:11:10.610 You do. They needed to pull passengers from France, 00:11:10.730 --> 00:11:13.610 from Germany, from Italy to fill those big DC 00:11:13.610 --> 00:11:16.570 -10s and 747 flying out of Zurich. So they see 00:11:16.570 --> 00:11:18.090 the writing on the wall and they try to merge. 00:11:18.720 --> 00:11:20.840 The Alcazar Project. I love that name. It sounds 00:11:20.840 --> 00:11:22.779 like a fortress. It was meant to be a fortress. 00:11:22.899 --> 00:11:26.440 Project Alcazar, 1993. On paper, it was brilliant. 00:11:26.659 --> 00:11:30.419 What was the plan? Merge Swissair, KLM, SA, the 00:11:30.419 --> 00:11:32.440 Scandinavian Airline, and Austrian Airlines. 00:11:33.059 --> 00:11:37.299 Create a single, massive, central European giant 00:11:37.299 --> 00:11:39.740 that could compete with British Airways, with 00:11:39.740 --> 00:11:42.679 Air France, with Lufthansa. It makes so much 00:11:42.679 --> 00:11:45.220 sense. So why did it fail? If it was such a good 00:11:45.220 --> 00:11:48.009 idea, why didn't it happen? National ego. Pure 00:11:48.009 --> 00:11:51.429 and simple hubris again. Really? The Swiss public, 00:11:51.730 --> 00:11:54.470 the unions and even parts of the board felt that 00:11:54.470 --> 00:11:56.990 merging with KLM, which had American partners 00:11:56.990 --> 00:12:00.269 and was seen as less premium, would dilute the 00:12:00.269 --> 00:12:02.889 precious Swiss brand. So is this feeling of we're 00:12:02.889 --> 00:12:04.690 better than them? Totally. They thought we are 00:12:04.690 --> 00:12:06.850 the flying bank. Why should we share our gold 00:12:06.850 --> 00:12:09.149 with these Dutch and Scandinavians? They thought 00:12:09.149 --> 00:12:10.889 their assets were too precious to share. So they 00:12:10.889 --> 00:12:13.169 walked away from the deal. A catastrophic mistake 00:12:13.169 --> 00:12:15.690 in hindsight. An unbelievable mistake because 00:12:15.690 --> 00:12:17.509 it leads directly to the single most critical 00:12:17.509 --> 00:12:21.419 moment in this entire timeline. December 6, 1992, 00:12:21.799 --> 00:12:24.580 the EEA referendum. Okay, this is a big one. 00:12:24.740 --> 00:12:26.600 If you want to pinpoint the exact moment the 00:12:26.600 --> 00:12:28.320 death of Swissair becomes inevitable, it starts 00:12:28.320 --> 00:12:30.639 here. The Swiss people vote no to joining the 00:12:30.639 --> 00:12:33.460 European Economic Area. We need to explain why 00:12:33.460 --> 00:12:35.779 this mattered so much for an airline. Because, 00:12:35.960 --> 00:12:38.639 you know, trade deals can sound really boring 00:12:38.639 --> 00:12:42.679 and abstract. Why was this fatal for Swissair? 00:12:43.100 --> 00:12:45.320 It created what was known as the island problem. 00:12:45.860 --> 00:12:48.740 Because Switzerland wasn't in the EEA, Swissair 00:12:48.740 --> 00:12:52.039 was suddenly treated as a third country carrier. 00:12:52.500 --> 00:12:55.600 And this denied them the right of cabotage. Cabotage. 00:12:55.600 --> 00:12:57.419 OK, we need to unpack that term. What is it? 00:12:57.659 --> 00:13:00.820 Capitize is basically the right for an airline 00:13:00.820 --> 00:13:02.980 from one country to operate domestic flights 00:13:02.980 --> 00:13:05.379 within another country or, more importantly, 00:13:05.460 --> 00:13:08.139 to pick up passengers in a foreign country and 00:13:08.139 --> 00:13:10.340 fly them to a third destination. You mean example. 00:13:10.519 --> 00:13:14.179 Okay. Under the new EU open skies rules, Lufthansa 00:13:14.179 --> 00:13:16.820 could fly from Frankfurt to Paris, pick up a 00:13:16.820 --> 00:13:18.919 plane full of French passengers, and then fly 00:13:18.919 --> 00:13:20.980 them all to New York. Right. They can tap into 00:13:20.980 --> 00:13:23.179 the French market. Exactly. But what about Swissair? 00:13:23.340 --> 00:13:25.580 They couldn't do that. They could not. If Swissair 00:13:25.580 --> 00:13:28.320 flew Zurich to Paris to New York, they could 00:13:28.320 --> 00:13:30.259 only carry passengers who started their journey 00:13:30.259 --> 00:13:32.580 in Zurich. They were legally barred from selling 00:13:32.580 --> 00:13:34.639 a ticket to a French person who just wanted to 00:13:34.639 --> 00:13:36.960 go from Paris to New York. They were locked out 00:13:36.960 --> 00:13:39.700 of the internal European market. Completely locked 00:13:39.700 --> 00:13:41.860 out. That sounds like a death sentence if your 00:13:41.860 --> 00:13:44.580 home market is as tiny as Switzerland's. You're 00:13:44.580 --> 00:13:46.419 just watching your competitors eat your lunch 00:13:46.419 --> 00:13:48.980 in every single neighboring country. They were 00:13:48.980 --> 00:14:05.059 geographic. So they're more expensive and they 00:14:05.059 --> 00:14:07.879 have... Less market access. A terrible combination. 00:14:08.279 --> 00:14:11.059 So the board panics. They realize, OK, we're 00:14:11.059 --> 00:14:13.480 isolated. We're expensive. We can't merge. We 00:14:13.480 --> 00:14:15.480 need a new strategy now. And this is when they 00:14:15.480 --> 00:14:18.200 call the consultants. Enter McKinsey and Company 00:14:18.200 --> 00:14:21.100 and the now infamous Hunter strategy. The name 00:14:21.100 --> 00:14:24.370 alone, Hunter. It implies aggression. It implies 00:14:24.370 --> 00:14:26.690 strength being on the offensive. It does. And 00:14:26.690 --> 00:14:29.110 the logic on a PowerPoint slide probably looked 00:14:29.110 --> 00:14:32.210 compelling. It was. If we can't merge with the 00:14:32.210 --> 00:14:34.289 big boys because we walked away from Alcazar 00:14:34.289 --> 00:14:37.370 and we can't join the EU market legally, then 00:14:37.370 --> 00:14:39.370 we will buy our way in. They wanted to build 00:14:39.370 --> 00:14:42.389 their own alliance by acquiring equity in other 00:14:42.389 --> 00:14:45.370 smaller airlines. Correct. They wanted to create 00:14:45.370 --> 00:14:47.409 their own version of the Star Alliance or One 00:14:47.409 --> 00:14:50.190 World, but with Swissair at the center, controlling 00:14:50.190 --> 00:14:53.139 everything. In theory, that doesn't sound completely 00:14:53.139 --> 00:14:56.299 terrible. You buy up smaller carriers, you feed 00:14:56.299 --> 00:14:58.419 their passengers into your long -haul network 00:14:58.419 --> 00:15:02.419 at Zurich. It seems logical. In theory, yes. 00:15:02.919 --> 00:15:05.259 But in practice, you have to look at who is available 00:15:05.259 --> 00:15:07.879 to buy. I mean, the good airlines, Lufthansa, 00:15:08.159 --> 00:15:10.700 British Airways, Air France, they were already 00:15:10.700 --> 00:15:12.399 taken. They were building their own alliances. 00:15:12.519 --> 00:15:14.799 They were too big and too expensive, so who was 00:15:14.799 --> 00:15:17.200 left to hunt? The sick, the lame, and the dying. 00:15:17.480 --> 00:15:19.620 Exactly. They went shopping in the bargain bin 00:15:19.620 --> 00:15:22.240 of European aviation. Their first big move was 00:15:22.240 --> 00:15:25.559 buying 49 .5 % of Sabina, the Belgian national 00:15:25.559 --> 00:15:27.899 carrier. Which I see referred to in the industry 00:15:27.899 --> 00:15:30.600 as such a bad experience never again. That was 00:15:30.600 --> 00:15:32.580 the running joke among frequent flyers, yes. 00:15:32.820 --> 00:15:34.960 And it was a financial basket case. Sabina was 00:15:34.960 --> 00:15:37.659 notoriously chronically unprofitable. The Belgian 00:15:37.659 --> 00:15:39.539 government and the powerful unions had a complete 00:15:39.539 --> 00:15:41.759 stranglehold on it. It had been losing money 00:15:41.759 --> 00:15:44.919 for years. And Swiss Air thought they could fix 00:15:44.919 --> 00:15:47.480 it. They thought they could impose Swiss... They 00:15:47.480 --> 00:15:50.759 poured millions upon millions into a black hole. 00:15:50.919 --> 00:15:53.820 And it wasn't just Sabina, though. The shopping 00:15:53.820 --> 00:15:57.340 spree continued. They went into France. Oh, the 00:15:57.340 --> 00:16:00.659 French adventure. They bought stakes in Air Liberté, 00:16:00.659 --> 00:16:03.379 AOM, and Air Littoral. I've never heard of any 00:16:03.379 --> 00:16:05.779 of them. Exactly. And that's the point. These 00:16:05.779 --> 00:16:08.720 were second tier struggling French carriers with 00:16:08.720 --> 00:16:11.559 terrible labor relations, incompatible fleets, 00:16:11.559 --> 00:16:13.519 and they were constantly at war with each other. 00:16:13.620 --> 00:16:15.980 I was looking at the fleet list for these acquisitions. 00:16:17.039 --> 00:16:19.500 It's a logistical nightmare. You're buying airlines 00:16:19.500 --> 00:16:21.740 that fly different Airbus models, different Boeing 00:16:21.740 --> 00:16:23.659 models. They have different engines. They need 00:16:23.659 --> 00:16:26.080 different spare parts. There is no synergy. Zero 00:16:26.080 --> 00:16:28.259 synergy. You can't just swap a part from a Swiss 00:16:28.259 --> 00:16:31.000 Air MD -11 onto an Air Liberté A320. It doesn't 00:16:31.000 --> 00:16:34.220 work. What was I thinking? The CEO at the time, 00:16:34.299 --> 00:16:36.799 Philippe Rigasseur, was obsessed with volume. 00:16:37.120 --> 00:16:39.860 He was an empire builder. He thought if he just 00:16:39.860 --> 00:16:42.419 bought enough revenue, enough market share, that 00:16:42.419 --> 00:16:44.840 the profits would eventually follow. But he wasn't 00:16:44.840 --> 00:16:47.409 buying revenue. He was buying debt. And the list 00:16:47.409 --> 00:16:49.750 goes on, right? It does. They bought into LTU 00:16:49.750 --> 00:16:52.809 in Germany, which was a struggling charter airline 00:16:52.809 --> 00:16:55.649 with a totally different business model. They 00:16:55.649 --> 00:16:59.850 bought into Volair in Italy, LOT in Poland, even 00:16:59.850 --> 00:17:02.690 South African Airways. It was completely indiscriminate. 00:17:02.970 --> 00:17:05.170 It sounds like a posse scheme. They're using 00:17:05.170 --> 00:17:08.230 the flying bank's massive cash reserves to prop 00:17:08.230 --> 00:17:11.410 up this zombie network of failing airlines around 00:17:11.410 --> 00:17:13.630 them. That's essentially what it was. By the 00:17:13.630 --> 00:17:15.690 summer of 2000, the numbers were just horrific. 00:17:16.029 --> 00:17:18.470 The Hunter Alliance was losing money at a rate 00:17:18.470 --> 00:17:20.369 that is difficult to comprehend. How bad was 00:17:20.369 --> 00:17:22.809 it? The documents show that Swiss Air and Sabina 00:17:22.809 --> 00:17:25.849 combined were bleeding one million Swiss francs 00:17:25.849 --> 00:17:28.869 per day. A million a day. And that's not all. 00:17:29.289 --> 00:17:32.130 The French and German investments, LTU and the 00:17:32.130 --> 00:17:34.329 others, were losing another million a day on 00:17:34.329 --> 00:17:36.730 top of that. So you wake up, have a coffee, and 00:17:36.730 --> 00:17:38.670 by the time you're done, Swiss Air has lost two 00:17:38.670 --> 00:17:41.170 million francs. Two million francs every single 00:17:41.170 --> 00:17:44.250 day. And yet the board let this continue. Yeah. 00:17:44.569 --> 00:17:47.130 How do you sit in a boardroom, look at a spreadsheet 00:17:47.130 --> 00:17:49.970 with minus two million a day and say, stay the 00:17:49.970 --> 00:17:53.230 course? The flying bank mentality blinded them. 00:17:53.390 --> 00:17:56.430 It was pure arrogance. They thought they had 00:17:56.430 --> 00:17:58.900 infinite resources. They thought. We are Swiss 00:17:58.900 --> 00:18:02.400 Air. We are Swiss. We will fix these small mismanaged 00:18:02.400 --> 00:18:05.299 airlines. They believe the McKinsey slides over 00:18:05.299 --> 00:18:07.720 the reality of their own bank account. Eventually, 00:18:07.720 --> 00:18:10.920 though, gravity has to kick in. In January 2001, 00:18:11.460 --> 00:18:14.940 Bruxer, the architect of this disaster, is fired. 00:18:15.079 --> 00:18:17.700 Right. And they bring in Moritz Suter. Now, Suter 00:18:17.700 --> 00:18:20.119 was the founder of Crossair, which was Swissair's 00:18:20.119 --> 00:18:22.880 successful regional subsidiary. He was a real 00:18:22.880 --> 00:18:25.240 aviation guy and entrepreneur. He was seen as 00:18:25.240 --> 00:18:27.740 the savior. The conquering hero returning to 00:18:27.740 --> 00:18:30.059 save the kingdom. But he didn't stay long at 00:18:30.059 --> 00:18:33.200 all. He lasted 44 days. 44 days. What happened? 00:18:33.460 --> 00:18:35.680 He came in. He looked at the books. He saw the 00:18:35.680 --> 00:18:38.059 absolute disaster that Brugeser had created. 00:18:38.319 --> 00:18:40.660 He tried to immediately restructure the black 00:18:40.660 --> 00:18:43.240 hole of the French airlines, got blocked by the 00:18:43.240 --> 00:18:45.569 board who were still in denial. And he essentially 00:18:45.569 --> 00:18:48.329 said, I'm out. This is unsalvageable. That should 00:18:48.329 --> 00:18:50.789 have been the biggest red flag in history. When 00:18:50.789 --> 00:18:52.690 the savior runs away screaming after a month 00:18:52.690 --> 00:18:54.690 and a half. You'd think so. But they just found 00:18:54.690 --> 00:18:56.910 another one. And then they bring in Mario Corti. 00:18:56.930 --> 00:19:00.309 The last man. Mario Corti is a truly tragic figure 00:19:00.309 --> 00:19:02.849 in this story. He wasn't an airline guy at all. 00:19:02.990 --> 00:19:06.069 He was the CFO of Nestle, a brilliant finance 00:19:06.069 --> 00:19:08.970 guy. He was brought in to be the ultimate cleanup 00:19:08.970 --> 00:19:11.589 man. But by the time he sat in the CDO's chair 00:19:11.589 --> 00:19:14.650 in March 2001, the airline was already terminal. 00:19:14.869 --> 00:19:17.430 The patient was dead. It just didn't know it 00:19:17.430 --> 00:19:20.049 yet. And then, just when you think it can't get 00:19:20.049 --> 00:19:22.490 any worse, history decides to kick them while 00:19:22.490 --> 00:19:25.369 they're down. We have to talk about Flight 111. 00:19:25.490 --> 00:19:28.670 The crash at Peggy's Cove, Nova Scotia, September 00:19:28.670 --> 00:19:33.549 2, 1998. An MD -11 flying from New York to Geneva 00:19:33.549 --> 00:19:35.910 just falls out of the sky into the Atlantic, 00:19:36.250 --> 00:19:39.230 killing all 229 people on board. And the cause 00:19:39.230 --> 00:19:41.289 was linked to the brand new fancy entertainment 00:19:41.289 --> 00:19:44.269 system they had just installed, right? Yes. Faulty 00:19:44.269 --> 00:19:46.049 wiring in the in -flight entertainment system 00:19:46.049 --> 00:19:48.470 located in the ceiling above the cockpit sparked 00:19:48.470 --> 00:19:51.720 and started a fire. The irony is just... It's 00:19:51.720 --> 00:19:54.000 brutal. It's dark. The pursuit of luxury, trying 00:19:54.000 --> 00:19:56.000 to offer the best screens, the best first -class 00:19:56.000 --> 00:19:58.380 experience, is what caused the fire that brought 00:19:58.380 --> 00:20:00.599 the plane down. The lawsuit settlements were 00:20:00.599 --> 00:20:04.680 massive. More importantly, it cracked that pristine 00:20:04.680 --> 00:20:07.319 image of safety. For the first time, people questioned 00:20:07.319 --> 00:20:09.779 if Swiss Air was fallible. Even the flying bank 00:20:09.779 --> 00:20:12.279 wasn't 100 % safe anymore. Passenger confidence 00:20:12.279 --> 00:20:14.740 started to waver. See, the psychological blow. 00:20:14.960 --> 00:20:17.559 Then you have the massive debt load from the 00:20:17.559 --> 00:20:20.980 Hunter strategy coming due. And then... September 00:20:20.980 --> 00:20:24.819 11, 2001. 9 -11 paralyzed global aviation overnight. 00:20:25.119 --> 00:20:27.900 But for Swiss Air, it wasn't just a pause. It 00:20:27.900 --> 00:20:30.880 was the final fatal death blow. Explain that. 00:20:31.230 --> 00:20:34.130 Because every airline suffered. Sure. But for 00:20:34.130 --> 00:20:36.809 a healthy airline like Lufthansa, 9 -11 was a 00:20:36.809 --> 00:20:39.250 severe crisis. They parked planes, they cut costs, 00:20:39.349 --> 00:20:41.009 they got government loan guarantees, and they 00:20:41.009 --> 00:20:43.130 weathered the storm. For Swissair, which was 00:20:43.130 --> 00:20:45.430 already burning through 2 million francs a day 00:20:45.430 --> 00:20:48.150 just to exist, it was impossible. Booking numbers 00:20:48.150 --> 00:20:50.569 just vanished. The cash flow stopped completely. 00:20:50.910 --> 00:20:53.450 So that brings us to the final frantic week of 00:20:53.450 --> 00:20:56.309 September 2001. This is where the story turns 00:20:56.309 --> 00:20:58.769 into a high -stakes financial thriller. It does. 00:20:58.930 --> 00:21:03.089 Mario Cordi goes, cap in hand, to the big Swiss 00:21:03.089 --> 00:21:07.349 banks, UBS and Credit Suisse, and basically begs 00:21:07.349 --> 00:21:10.029 for an emergency credit line, a lifeline to get 00:21:10.029 --> 00:21:12.410 them through the crisis. And UBS, specifically 00:21:12.410 --> 00:21:14.970 the chairman at the time, Marcel Auspel, says 00:21:14.970 --> 00:21:18.400 no. Flat out no. Why? I mean, why let a national 00:21:18.400 --> 00:21:20.740 icon fail? This is the flag carrier. This is 00:21:20.740 --> 00:21:22.859 Switzerland. From the bank's perspective, they 00:21:22.859 --> 00:21:24.960 looked at the books and they saw a bottomless 00:21:24.960 --> 00:21:27.799 pit. They argued that lending more money to Swiss 00:21:27.799 --> 00:21:30.480 Air wasn't a loan. It was a donation. They didn't 00:21:30.480 --> 00:21:32.440 think they'd get it back. They knew they wouldn't. 00:21:32.440 --> 00:21:34.019 They didn't believe the business model worked 00:21:34.019 --> 00:21:35.819 anymore. They were tired of throwing good money 00:21:35.819 --> 00:21:38.799 after bad. The public reaction to that was visceral, 00:21:38.799 --> 00:21:41.539 though. I remember seeing news footage of protesters 00:21:41.539 --> 00:21:45.940 holding signs calling Auspil. They called UBS 00:21:45.940 --> 00:21:49.380 the United Bandits of Switzerland. The Swiss 00:21:49.380 --> 00:21:52.579 public felt profoundly betrayed. They couldn't 00:21:52.579 --> 00:21:54.759 separate the emotional value of the flag carrier 00:21:54.759 --> 00:21:57.640 from the cold, hard math of the balance sheet. 00:21:57.839 --> 00:21:59.619 They thought the banks had a patriotic duty. 00:21:59.799 --> 00:22:02.480 A duty to save the airline regardless of the 00:22:02.480 --> 00:22:05.920 cost. But the banks held firm, which leads us 00:22:05.920 --> 00:22:09.519 to October 2, 2001, the day of the grounding. 00:22:09.980 --> 00:22:12.450 Walk us through the mechanics of this. Because 00:22:12.450 --> 00:22:14.569 it wasn't a planned shutdown. It wasn't an orderly 00:22:14.569 --> 00:22:16.970 bankruptcy filing. No, it was absolute chaos. 00:22:17.879 --> 00:22:19.900 Cordy had announced a restructuring plan the 00:22:19.900 --> 00:22:22.579 day before, but he needed immediate cash, like 00:22:22.579 --> 00:22:24.779 right now, to keep the planes flying that day. 00:22:24.880 --> 00:22:27.460 For fuel. For fuel, for landing fees, for catering. 00:22:27.480 --> 00:22:30.599 The banks stalled on releasing any funds. And 00:22:30.599 --> 00:22:33.900 the fuel suppliers at Heathrow, at JFK, and even 00:22:33.900 --> 00:22:36.940 at home in Zurich, they saw the news. They knew 00:22:36.940 --> 00:22:39.380 Swiss Air was on the brink of collapse. And fuel 00:22:39.380 --> 00:22:41.420 suppliers aren't in the charity business. No. 00:22:41.619 --> 00:22:44.410 They invoked cash on delivery. They essentially 00:22:44.410 --> 00:22:46.210 told the pilots, put the cash on the hood of 00:22:46.210 --> 00:22:48.289 the truck or we don't connect the hose. And Swiss 00:22:48.289 --> 00:22:50.950 Air literally didn't have the cash on hand. Cordy 00:22:50.950 --> 00:22:53.509 claimed at the time they only had about 14 .5 00:22:53.509 --> 00:22:56.309 million francs accessible. That wasn't even close 00:22:56.309 --> 00:22:58.190 to enough to cover the fuel bill for the entire 00:22:58.190 --> 00:23:01.890 global fleet for a single day. So at 15 .45 that 00:23:01.890 --> 00:23:04.230 afternoon, a message goes out. Flight operations 00:23:04.230 --> 00:23:06.769 are suspended. The stories from the staff on 00:23:06.769 --> 00:23:09.619 that day are. Just heartbreaking. I read you 00:23:09.619 --> 00:23:11.680 had pilots using their personal credit cards 00:23:11.680 --> 00:23:14.920 to try and buy fuel. Yes. Can you imagine the 00:23:14.920 --> 00:23:17.119 desperation? You have Swiss Air captains handing 00:23:17.119 --> 00:23:19.799 over their personal American Express cards to 00:23:19.799 --> 00:23:22.319 try and get enough kerosene to get their passengers 00:23:22.319 --> 00:23:25.559 home. But the amounts were just too high. The 00:23:25.559 --> 00:23:28.640 cards were declined. In the hotels, the crew 00:23:28.640 --> 00:23:31.220 layovers. The hotels kicked the crews out. Imagine 00:23:31.220 --> 00:23:33.480 being a flight attendant in Johannesburg or Sao 00:23:33.480 --> 00:23:36.599 Paulo. You check into your hotel after a 12 -hour 00:23:36.599 --> 00:23:39.599 shift, and the front desk says, sorry, Swiss 00:23:39.599 --> 00:23:41.579 Air's corporate credit is no good here. You have 00:23:41.579 --> 00:23:44.720 to leave. Unbelievable. Crews were sleeping in 00:23:44.720 --> 00:23:46.940 airport lobbies, borrowing money from passengers 00:23:46.940 --> 00:23:50.579 to get taxis. It was a total, absolute national 00:23:50.579 --> 00:23:53.539 humiliation broadcast live around the world. 00:23:53.720 --> 00:23:55.980 Now, there is a massive controversy here, isn't 00:23:55.980 --> 00:23:59.309 there, about the missing money? Later investigations 00:23:59.309 --> 00:24:01.670 suggested Corti might have been wrong or at least 00:24:01.670 --> 00:24:04.190 misleading about the cash position that day. 00:24:04.329 --> 00:24:06.470 This is the Ernst & Young report that came out 00:24:06.470 --> 00:24:09.470 later. It's a huge point of contention. Years 00:24:09.470 --> 00:24:11.730 later, their forensic accountants claim there 00:24:11.730 --> 00:24:14.910 was actually around 123 million francs in various 00:24:14.910 --> 00:24:16.569 accounts that could have been used that day. 00:24:16.710 --> 00:24:19.690 That's a huge difference. 14 million versus 123 00:24:19.690 --> 00:24:21.769 million. That's the difference between flying. 00:24:22.269 --> 00:24:25.430 and grounding it is now the defense from corti 00:24:25.430 --> 00:24:28.170 and the management was that this money was trapped 00:24:28.170 --> 00:24:31.049 it was in subsidiary accounts or escrow accounts 00:24:31.049 --> 00:24:33.650 or in foreign currencies that couldn't be liquidated 00:24:33.650 --> 00:24:36.390 in two hours to pay a fuel guy on the tarmac 00:24:36.390 --> 00:24:39.089 at heathrow but to the employees who lost their 00:24:39.089 --> 00:24:42.109 jobs their pensions. To them, it looked like 00:24:42.109 --> 00:24:45.069 gross incompetence or worse. They felt the grounding 00:24:45.069 --> 00:24:47.549 was unnecessary theater, that it was a deliberate 00:24:47.549 --> 00:24:50.250 act to force the government's hand. It's still 00:24:50.250 --> 00:24:53.009 bitterly debated in Switzerland today. Regardless 00:24:53.009 --> 00:24:55.109 of whether the money was there or not, once the 00:24:55.109 --> 00:24:57.710 planes stop flying, the trust is gone forever. 00:24:57.950 --> 00:25:00.349 You can't just restart an airline after stranding 00:25:00.349 --> 00:25:02.950 40 ,000 passengers around the globe. The brand 00:25:02.950 --> 00:25:05.740 was dead. The flying bank was officially bankrupt. 00:25:06.059 --> 00:25:09.619 Those images of the entire Swiss Air fleet sitting 00:25:09.619 --> 00:25:13.099 idle on the tarmac in Zurich, wingtip to wingtip, 00:25:13.140 --> 00:25:16.960 they were the tombstone. But a country like Switzerland 00:25:16.960 --> 00:25:20.400 needs connectivity. They're a global business 00:25:20.400 --> 00:25:22.599 hub. They couldn't just have no national airline. 00:25:23.039 --> 00:25:25.779 So the government initiated Project Phoenix. 00:25:26.119 --> 00:25:28.900 Which was essentially a shell game, a very, very 00:25:28.900 --> 00:25:31.299 expensive shell game paid for by the taxpayer. 00:25:31.660 --> 00:25:34.430 So how did it work? They took Crossair, the regional 00:25:34.430 --> 00:25:36.369 subsidiary we mentioned earlier, the one founded 00:25:36.369 --> 00:25:39.230 by Moritz Suter. It was smaller, but it was technically 00:25:39.230 --> 00:25:42.109 still solvent. The Swiss government pumped billions 00:25:42.109 --> 00:25:45.099 of francs into it. Then Crossair was used to 00:25:45.099 --> 00:25:47.339 buy the good assets of the dead Swiss Air. So 00:25:47.339 --> 00:25:49.740 they took the planes, the routes, the valuable 00:25:49.740 --> 00:25:52.720 landing slots at Heathrow and JFK. And most of 00:25:52.720 --> 00:25:55.440 the staff. Yes. Bad stuff. They left the massive 00:25:55.440 --> 00:25:58.160 debts, the Hunter strategy liabilities, the pension 00:25:58.160 --> 00:26:00.759 obligations, and all the bad investments in the 00:26:00.759 --> 00:26:03.019 old Swiss Air corporate carcass to be liquidated 00:26:03.019 --> 00:26:05.140 over the next 20 years. And then they just renamed 00:26:05.140 --> 00:26:08.480 Crossair. Exactly. Crossair was renamed Swiss 00:26:08.480 --> 00:26:11.680 International Airlines. Or just Swiss for short. 00:26:11.680 --> 00:26:15.559 A clean slate. Same planes, same staff, new logo, 00:26:15.759 --> 00:26:19.099 no debt. But here is the ultimate crushing irony 00:26:19.099 --> 00:26:22.299 of the entire story. The whole point of the disastrous 00:26:22.299 --> 00:26:24.559 Hunter strategy, the whole reason they burned 00:26:24.559 --> 00:26:26.400 through billions and billions of francs. As to 00:26:26.400 --> 00:26:28.900 stay independent. To stay independent and not 00:26:28.900 --> 00:26:32.190 merge with a European giant like Lufthansa. And 00:26:32.190 --> 00:26:35.250 in 2005, just three years after the new Swiss 00:26:35.250 --> 00:26:37.910 launched, what happens? They were bought by Lufthansa. 00:26:38.009 --> 00:26:40.690 The very thing they fought so desperately against. 00:26:40.869 --> 00:26:42.990 It's a perfect tragedy. They spent their entire 00:26:42.990 --> 00:26:45.509 fortune trying to avoid becoming a junior partner 00:26:45.509 --> 00:26:48.829 to Lufthansa. And they ended up becoming a wholly 00:26:48.829 --> 00:26:51.630 owned subsidiary of Lufthansa, but without the 00:26:51.630 --> 00:26:54.809 fortune. It is a Greek tragedy of corporate strategy. 00:26:54.990 --> 00:26:57.289 You meet your destiny on the very road you take 00:26:57.289 --> 00:26:58.930 to avoid it. There was a trial, wasn't there, 00:26:59.049 --> 00:27:02.339 in 2007. The whole bull... All the executives 00:27:02.339 --> 00:27:04.720 were dragged into court. The public wanted heads 00:27:04.720 --> 00:27:06.779 to roll. They were charged with mismanagement, 00:27:06.880 --> 00:27:09.940 making false statements, forgery, damaging creditors, 00:27:09.960 --> 00:27:13.299 the works. And the verdict? They were all acquitted. 00:27:13.380 --> 00:27:15.880 Every single one of them. I mean, how do you 00:27:15.880 --> 00:27:18.500 lose that much money, destroy a national icon, 00:27:18.759 --> 00:27:21.000 and get acquitted? The business judgment rule. 00:27:21.220 --> 00:27:23.880 The court basically ruled that just because a 00:27:23.880 --> 00:27:26.380 strategy is catastrophic, that doesn't mean it's 00:27:26.380 --> 00:27:28.710 criminal. They were trying to save the airline. 00:27:29.009 --> 00:27:33.289 They failed spectacularly. But stupidity or arrogance 00:27:33.289 --> 00:27:36.539 or even just bad luck. isn't a crime in the corporate 00:27:36.539 --> 00:27:38.859 code. That must have been an incredibly bitter 00:27:38.859 --> 00:27:40.960 pill to swallow for the thousands of employees 00:27:40.960 --> 00:27:43.420 who lost their life savings. Their pensions were 00:27:43.420 --> 00:27:45.660 tied up in worthless Swiss Air stock. It was 00:27:45.660 --> 00:27:48.500 devastating. Many of them lost everything. It's 00:27:48.500 --> 00:27:51.339 still a deep wound in Switzerland today. If you 00:27:51.339 --> 00:27:53.839 bring up the grounding in a bar in Zurich, you 00:27:53.839 --> 00:27:56.480 will still get very, very strong opinions. Before 00:27:56.480 --> 00:27:59.599 we wrap this up, I found one bizarre little footnote 00:27:59.599 --> 00:28:01.059 in the source material about the brand name. 00:28:01.440 --> 00:28:04.250 The name Swiss Air. Who owns it now? What happened 00:28:04.250 --> 00:28:06.029 to it? This is one of the weirdest parts of the 00:28:06.029 --> 00:28:08.609 story. To prevent the trademark from expiring 00:28:08.609 --> 00:28:12.130 due to non -use, the new company, Swiss, had 00:28:12.130 --> 00:28:14.650 to license the name Swissair out. To another 00:28:14.650 --> 00:28:17.599 airline. Not exactly. They licensed it to a tiny 00:28:17.599 --> 00:28:20.420 aviation sports club in the U .S. and for a few 00:28:20.420 --> 00:28:24.839 years to a U .S. air taxi operator called Hopscotch 00:28:24.839 --> 00:28:28.099 Air. Hopscotch Air. Yeah. They flew small, single 00:28:28.099 --> 00:28:31.039 -engine Cirrus propeller planes on short hops 00:28:31.039 --> 00:28:33.839 around the Northeast. So for a while, if you 00:28:33.839 --> 00:28:36.279 saw the name Swiss Air in the sky, it wasn't 00:28:36.279 --> 00:28:38.940 a giant jumbo jet. It was a tiny four -seater 00:28:38.940 --> 00:28:42.000 plane flying over New York State. A ghost of 00:28:42.000 --> 00:28:44.700 the flying bank. A very, very small ghost. So 00:28:44.700 --> 00:28:47.299 after all this, what is the takeaway here? Is 00:28:47.299 --> 00:28:49.799 this just a straightforward story about bad management 00:28:49.799 --> 00:28:52.160 or is there a deeper, more universal lesson? 00:28:52.440 --> 00:28:55.539 I think it's about the profound danger of exceptionalism. 00:28:56.029 --> 00:28:58.390 Swiss Air believed it was exempt from the rules 00:28:58.390 --> 00:29:00.650 of the market. They believed it because they 00:29:00.650 --> 00:29:02.569 were Swiss, because they were rich, because their 00:29:02.569 --> 00:29:05.069 brands stood for quality. They truly thought 00:29:05.069 --> 00:29:07.230 gravity didn't apply to them. And they ignored 00:29:07.230 --> 00:29:09.170 the new reality. They completely ignored the 00:29:09.170 --> 00:29:11.549 structural reality of the European market after 00:29:11.549 --> 00:29:14.289 deregulation. They tried to use financial engineering 00:29:14.289 --> 00:29:16.730 to solve what was, at its heart, a geography 00:29:16.730 --> 00:29:18.809 problem. And when the cash from the flying bank 00:29:18.809 --> 00:29:21.690 ran out, reality won. Geography always wins. 00:29:21.890 --> 00:29:23.609 It really makes you think about the companies 00:29:23.609 --> 00:29:27.230 we consider safe or too big to fail today. You 00:29:27.230 --> 00:29:28.990 look at some of the tech giants or the massive 00:29:28.990 --> 00:29:30.950 banks and think, well, they have too much cash 00:29:30.950 --> 00:29:33.970 to fail. But Swiss Air had too much cash to fail 00:29:33.970 --> 00:29:37.630 until the day they didn't. Cash burns very, very 00:29:37.630 --> 00:29:40.549 fast when you're fueling a bad strategy. And 00:29:40.549 --> 00:29:44.490 a 70 -year reputation can burn even faster. If 00:29:44.490 --> 00:29:46.559 you want to see what that reputation. what that 00:29:46.559 --> 00:29:49.380 hubris looked like at its absolute peak. The 00:29:49.380 --> 00:29:52.900 records mention a 1967 film called Follow Me. 00:29:53.319 --> 00:29:55.279 It's apparently a perfect time capsule of that 00:29:55.279 --> 00:29:57.519 golden age glamour. It's worth a watch. Just, 00:29:57.599 --> 00:29:59.720 you know, remember how the story ends. That's 00:29:59.720 --> 00:30:01.460 it for this deep dive. We'll see you next time.