Swiss International Air Lines Ltd Annual Report Swiss International Air by whoodeewhoo

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									Swiss International Air Lines Ltd.
Annual Report 2004
Swiss International Air Lines
Annual Report 2004

Published April 29, 2005




Annual Report
2004
Swiss International Air Lines   Contents   Swiss International Air Lines   Contents
Annual Report 2004                         Annual Report 2004




                                Contents
                                           Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                 and the CEO                           7



                                                                           Products and services                 SWISS: tailored to your needs       12
                                                                                                                 Swiss WorldCargo                    15



                                                                           The 2004 business year                Substantial progress towards
                                                                                                                 a competitive company               22
                                                                                                                 2004 financial results              24
                                                                                                                 SWISS at a glance                   26



                                                                           Facts and figures                     Traffic results for 2004            34
                                                                                                                 The route network                   36
                                                                                                                 The aircraft fleet                  38



                                                                           Environmental and political affairs   SWISS and the environment           44
                                                                                                                 Aeropolitical affairs               48



                                                                           The fascination of flying             SWISS, a network carrier            54
                                                                                                                 The Operations Control Center       56



                                                                           Corporate governance                                                      62




                                           Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                 Consolidated balance sheet          77
                                                                                                                 Consolidated statement of
                                                                                                                 changes in shareholders’ equity     78
                                                                                                                 Consolidated cash flow statement    79
                                                                                                                 Notes to the consolidated
                                                                                                                 financial statements                 80
                                                                                                                 Report of the Group Auditors        126
                                                                                                                 Five-year review                    127



                                                                           Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                 Balance sheet                       131
                                                                                                                 Notes to the financial statements   132
                                                                                                                 Report of the Statutory Auditors    141



                                                                           Contacts                                                                  144
Swiss International Air Lines   Introduction   Swiss International Air Lines   Introduction
Annual Report 2004                             Annual Report 2004




                                Introduction
                                               Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                     and the CEO                           7



                                                                               Products and services                 SWISS: tailored to your needs       12
                                                                                                                     Swiss WorldCargo                    15



                                                                               The 2004 business year                Substantial progress towards
                                                                                                                     a competitive company               22
                                                                                                                     2004 financial results              24
                                                                                                                     SWISS at a glance                   26



                                                                               Facts and figures                     Traffic results for 2004            34
                                                                                                                     The route network                   36
                                                                                                                     The aircraft fleet                  38



                                                                               Environmental and political affairs   SWISS and the environment           44
                                                                                                                     Aeropolitical affairs               48



                                                                               The fascination of flying             SWISS, a network carrier            54
                                                                                                                     The Operations Control Center       56



                                                                               Corporate governance                                                      62




                                               Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                     Consolidated balance sheet          77
                                                                                                                     Consolidated statement of
                                                                                                                     changes in shareholders’ equity     78
                                                                                                                     Consolidated cash flow statement    79
                                                                                                                     Notes to the consolidated
                                                                                                                     financial statements                 80
                                                                                                                     Report of the Group Auditors        126
                                                                                                                     Five-year review                    127



                                                                               Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                     Balance sheet                       131
                                                                                                                     Notes to the financial statements   132
                                                                                                                     Report of the Statutory Auditors    141



                                                                               Contacts                                                                  144
    Swiss International Air Lines   Introduction
    Annual Report 2004              Foreword from the Chairman and the CEO




    Foreword from the
    Chairman and the CEO

                                    Dear shareholder                                        The synergies offered by a close collaboration
                                                                                            with a major European airline lie above all in the
                                    Overcapacities in the airline sector all over the       higher revenues that can be generated through
                                    world (and in Europe in particular), growing com-       joint and optimised marketing, the resulting
                                    petition (especially from the low-cost carriers),       increases in market share, the cost economies
                                    associated fare erosion and persistently high jet       achieved by harmonising services between the
                                    fuel prices all had their impact on the air transport   two countries concerned and several further
                                    environment in 2004. But the Board of Directors         areas.
                                    and the Management Board of Swiss Internatio-
                                    nal Air Lines Ltd. responded actively to the chal-      In view of these findings, yet another assessment
                                    lenges, and SWISS made substantial progress in          was performed of the strategic partnership op-
                                    enhancing its ability to compete in its markets in      tions available to SWISS, and exploratory discus-
                                    the course of the year.                                 sions were conducted with possible partners in
                                                                                            the course of 2004. These talks clearly revealed
                                    2004 was thus characterised by a further resizing       that a collaboration with Lufthansa, the success-
                                    of the SWISS route network and improvements to          ful German-based international airline, produced
                                    our company’s cost structures. Full attention was       by far the best strategic fit with our own business
                                    paid throughout the year to evaluating efficiency-      operations. SWISS’s integration into the Luft-
                                    raising potential and taking appropriate action.        hansa Group offered highly attractive prospects
                                    The process, while painful for many of the people       and potential, and was evidently in the best in-
                                    involved, helped deliver a substantially-improved       terests of the company, its personnel, our share-
                                    operating result and a significant improvement in       holders and all further stakeholders.
                                    our company’s liquidity.
                                                                                            Similar discussions had in fact been held with
                                    The lingering industry difficulties compelled us to     Lufthansa some two years ago. But those talks
                                    demand further sizeable concessions from our            had foundered, not least because our company
                                    personnel and their staff associations. In doing        was in a far less healthy state then than it is now
                                    so, the Board of Directors and the Management           and, as a result, demands were made which
                                    Board were primarily concerned not with effect-         could not be met. Our recent negotiations were
                                    ing short-term cost economies but with creating         conducted against a completely different back-
                                    the competitive structures and achieving the            ground and on a far more equal footing.
                                    sustainable profitability that would offer positive
                                    long-term job prospects to as many employees as         The fact that these talks were held on such a
                                    possible. Parallel to these endeavours, negotia-        foundation owes much to the extensive progress
                                    tions were continued with our suppliers to further      made at SWISS in consistently pursuing the
                                    lower our services and materials costs.                 restructuring programme introduced in 2003,
                                                                                            and to the tireless and admirable efforts of all our
                                    As part of their longer-term supervisory and            employees at every corporate level. As a result
                                    management remit, the Board of Directors and            of these achievements, the further measures
                                    the Management Board also continued to exam-            announced in January 2005 now offer a clear
                                    ine our current business model and the outlook          perspective of when and how SWISS can secure
                                    for SWISS as a classic network carrier, given the       itself the competitive position that is so indis-
                                    ongoing consolidation within the airline sector.        pensable to its sustainable business success.
                                    These efforts were concerned with nothing less
                                    than the long-term survival of SWISS and of             The latest constructive talks with Lufthansa soon
                                    Switzerland’s direct air links with the world.          proved productive. Our ambition in these nego-
                                                                                            tiations was to secure an agreement that would
                                    Our exhaustive analysis of SWISS’s opportunities        best protect and promote the interests of SWISS,
                                    and limitations in the international air transport      its customers, its employees and its shareholders,
                                    business led once again to the conclusion that,         and also those of the Swiss air transport sector
                                    without the synergies which would derive from a         and related economic activities. The business
                                    strategic partnership with a strong airline com-        model jointly devised by both parties for the ac-
                                    petitor, a sustainably positive performance would       quisition of SWISS by Lufthansa and its integra-
                                    be extremely difficult to achieve, and that SWISS’s     tion into the Lufthansa Group fully meets these
                                    future would be far from certain in a go-it-alone       objectives.
                                    scenario. Such a policy would also be unlikely to
                                    secure the funds which would soon be needed to
                                    replace the regional aircraft fleet or meaningfully
                                    expand the present long-haul fleet.




6                                                                                                                                                 7
Swiss International Air Lines                           Introduction
Annual Report 2004                                      Foreword from the Chairman and the CEO




Under the agreement signed on March 22, 2005,           The Board of Directors and the Management
which already has the support of our major share-       Board sincerely hope that all our shareholders will
holders and will hopefully be backed by all the         join us in supporting this landmark achievement
company’s further shareholders, too, SWISS will         in SWISS’s still-young history. We will be doing
gradually become a Lufthansa subsidiary over            our utmost to make the most of this new business
the next few years. As such, as far as is possible      basis, to the benefit of SWISS and all its stake-
and feasible in business terms, SWISS will:             holders. In doing so, we are fortunate to count on
                                                        the loyalty and the commitment of our employees
– retain and continue to develop its Zurich hub         at all corporate levels. And we take this opportu-
  and Switzerland’s intercontinental air connec-        nity to offer them our thanks and appreciation for
  tions;                                                all their continued support.

– maintain adequate air services and connections        We are confident of obtaining the approval of
  to and from Basel and Geneva together with its        our agreement with Lufthansa from the EU au-
  airline partners, and improve these where             thorities within the next few months, after which
  possible;                                             our new collaboration can begin in earnest in
                                                        the interests of everyone concerned. And we are
– benefit from the size and strength of one of the      equally confident that SWISS will remain Switzer-
  world’s biggest airlines;                             land’s airline for many years to come.

– thereby secure itself a sustainably competitive
  position as a largely autonomous premium
  airline;

– enjoy promising prospects of generating
  substantial profits and gaining genuine growth
  opportunities; and                                    Pieter Bouw                 Dr. Christoph Franz
                                                        Chairman of the Board       President & Chief
– be solidly financed and thus less vulnerable to                                   Executive Officer
  external risks.

The price of securing SWISS’s long-term exis-
tence is giving up our independence. The Board
of Directors and the Management Board are well
aware of the strong emotions that Switzerland’s
national airline has aroused in taking this step.
But SWISS will remain a Swiss airline, operating
from Switzerland and, with the Swiss cross on its
tailfins, acting as a flying ambassador for Swiss
quality all over the world. Or, in other words:
SWISS will still be SWISS – even with Lufthansa.

The agreement between Lufthansa and SWISS is
a team-up of two airlines with worldwide reputa-
tions for quality and service. At the end of the day,
though, any such partnership will stand or fall by
the benefits it offers the customer. Assimilation
into the Star Alliance, an expanded timetable with
more destinations and better connections, inter-
linked frequent flyer programmes and global
lounge access are just some of the many advan-
tages to customers that the new partnership will
provide. As a member of the Lufthansa Group,
SWISS can not only put its mission of connecting
Switzerland with the world on a firmer business
foundation; it can also perform it even better than
before.




                                                                                                              Marco Müller
                                                                                                              Airbus Fleet Chief Pilot
8                                                                                                             photographed in front of an Airbus A330
Swiss International Air Lines   Products and services   Swiss International Air Lines   Products and services
Annual Report 2004                                      Annual Report 2004




                                Products
                                                        Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                              and the CEO                           7



                                                                                        Products and services                 SWISS: tailored to your needs       12


                                and services                                            The 2004 business year
                                                                                                                              Swiss WorldCargo



                                                                                                                              Substantial progress towards
                                                                                                                                                                  15




                                                                                                                              a competitive company               22
                                                                                                                              2004 financial results              24
                                                                                                                              SWISS at a glance                   26



                                                                                        Facts and figures                     Traffic results for 2004            34
                                                                                                                              The route network                   36
                                                                                                                              The aircraft fleet                  38



                                                                                        Environmental and political affairs   SWISS and the environment           44
                                                                                                                              Aeropolitical affairs               48



                                                                                        The fascination of flying             SWISS, a network carrier            54
                                                                                                                              The Operations Control Center       56



                                                                                        Corporate governance                                                      62




                                                        Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                              Consolidated balance sheet          77
                                                                                                                              Consolidated statement of
                                                                                                                              changes in shareholders’ equity     78
                                                                                                                              Consolidated cash flow statement    79
                                                                                                                              Notes to the consolidated
                                                                                                                              financial statements                 80
                                                                                                                              Report of the Group Auditors        126
                                                                                                                              Five-year review                    127



                                                                                        Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                              Balance sheet                       131
                                                                                                                              Notes to the financial statements   132
                                                                                                                              Report of the Statutory Auditors    141



                                                                                        Contacts                                                                  144
Swiss International Air Lines   Products and services                                                                                            Swiss International Air Lines                          Products and services
Annual Report 2004              SWISS: tailored to your needs                                                                                    Annual Report 2004                                     SWISS: tailored to your needs




SWISS:
tailored to your needs

                                SWISS connects Switzerland with Europe and              E-travel                                                 – The latest departure and arrival times by            Greater comfort on the Airbus A320                      – SWISS Taste of Switzerland: The “SWISS Taste
                                the world. Switzerland’s airline offers direct air                                                                 text message or e-mail: SWISS will also provide      SWISS equipped eleven of its Airbus A320 aircraft         of Switzerland” gastronomy concept which
                                services from Zurich, Geneva, Basel and Lugano          – Shows the lowest fare for the travel period              the latest update on a flight’s departure or         with new seats between January and the end of             SWISS introduced in 2002 offers passengers a
                                to 74 destinations. SWISS offers the most con-            desired.                                                 arrival time on request, sending these details       March 2005. The refurbished cabin in the elegant          fascinating glimpse of Switzerland’s varied
                                venient direct services to 69 points around the                                                                    by e-mail or text message (SMS). So SWISS            new SWISS design is even more stylish than be-            culinary landscape. The programme has already
                                world from its Zurich hub, 42 of them in Europe         – Shows fares and flights up to three days before          customers can keep themselves fully in-              fore. And the new Swiss Business and Swiss Eco-           featured specialities from Cantons Grisons,
                                and 27 overseas. And, as the country’s flying             and after the preferred travel date.                     formed of when a flight will land or take off.       nomy seats are more comfortable than their                Ticino, Thurgau, Lucerne, Schaffhausen and
                                ambassador, SWISS bases all its products and                                                                       The service can be requested online on the           predecessors. With their use of carbon materials,         Valais, together with the Lake Geneva region.
                                services on the traditional Swiss values of quality,    – Shows the seats still available in the booking           www.swiss.com/flightinfo webpage.                    the backs are also thinner, giving passengers             The innovative catering concept earned a silver
                                reliability and hospitality.                              category desired.                                                                                             more space to the seat in front. The position of          medal in Nice at the 2004 Mercury Awards.
                                                                                                                                                 SWISS at Zurich: the smoothest of                      the seat-back pocket has also been raised to
                                The international distinctions which SWISS              – Offers a quick overview of the lowest available        departures and transfers                               provide more legroom.                                   The new SWISS Lounge:
                                continues to earn – that latest being its naming          fares.                                                 SWISS and Unique (Flughafen Zürich AG) are                                                                     more passenger comfort
                                as Europe’s Leading Airline at the World Travel                                                                  intensifying their collaboration at Zurich Airport –   The refurbished A320s have the middle seat kept         To coincide with the opening of the new Airside
                                Awards on December 11, 2004 and as Best Airline         – Freely-combinable fares and booking categories         to the benefit of their passengers. The partners       free in their Swiss Business cabins. These middle       Center, SWISS recently refurbished its lounges in
                                to North & South America by Germany’s Business            for outward and return travel.                         have jointly devised a new user concept for the        seats are also equipped with a special foldout          Zurich’s Pier A. The new-look lounges offer
                                Traveller business magazine in autumn 2004 – are                                                                 airport, which was adopted with the start of the       table that provides a practical surface for per-        passengers more comfort and quiet along with
                                a strong motivation for the company to continue                                                                  summer schedules at the end of March 2005.             sonal items. The new arrangement offers Swiss           practical workplaces. And a special focus in
                                on its chosen course.                                                                                            The new concept will help establish Zurich even        Business passengers substantially more space            the new facility is provided by what is probably
                                                                                        – E-booking: Customers will find a user-                 more firmly as an efficient transfer hub with          and more privacy, too.                                  the longest lounge bar in the airline world, with
                                Carefully-tailored products meeting individual            friendly Internet booking system on SWISS’s            swift and seamless flows.                                                                                      a length of some 30 metres, which offers passen-
                                needs: this is the SWISS product philosophy.              www.swiss.com website. The facility allows                                                                    SWISS à la carte                                        gers a fascinating view out over the airport and its
                                Every customer has individual wishes and expec-           flights to be conveniently and reliably booked in      Under the new user concept, all SWISS’s Euro-          More and more people around the world are               activities. All in all, the newly-refurbished lounges
                                tations; and SWISS responds to these with inno-           line with all their personal wishes. In response       pean and North African services are handled at         coming to appreciate the value of healthy and           provide some 1 800 travellers a day with the ideal
                                vation and flexibility, be it at the time of booking,     to a frequently-voiced customer request, flights       Pier A, and all SWISS long-haul services arrive        balanced eating. It is a trend that is changing         conditions in which to relax before their flight.
                                at check-in or through its service on board.              can now also be booked at www.swiss.com                at and depart from Pier E. The new arrangement         passengers’ expectations of the inflight food
                                                                                          without entering a personal user profile. In           enhances the plannability of the processes             service that an airline provides. Customers have
                                Anyone seeking a simple city-to-city flight – to          providing this option, SWISS has substantially         involved, permitting shorter check-in deadlines        become more individual in their culinary wishes         The SWISS Lounge in the Airside Center
                                Vienna, for example – is best advised to visit            simplified the online booking process.                 and connecting times. SWISS passengers benefit         and needs, which show strong variations accord-
                                SWISS’s www.swiss.com Internet booking plat-                                                                     from a clear and understandable arrival and            ing to their origins. In view of this, SWISS attaches   The integration of the SWISS Lounge into the
                                form. The SWISS website offers customers a              – E-ticket: An e-ticket can be booked just like any      departure concept, shorter journeys to, from and       great importance to providing inflight food and         Airside Center offers substantial benefits to
                                user-friendly booking facility whose performance          other ticket at any travel agency or with SWISS        between flights and smoother transfers from            drink that are tailored as closely as possible          SWISS passengers:
                                was further enhanced in spring 2005. Open                 (in a city travel office, by phone or online). But     one flight to another.                                 to each customer’s personal preferences and
                                24 hours a day, accessible from the customer’s            an e-ticket is not printed in the conventional                                                                requirements.                                           – shorter journeys and transfer times with
                                home and featuring attractively-priced fares,             way; it is simply stored electronically in the re-     The new concept positions Zurich Airport as one                                                                  passport control close by
                                www.swiss.com offers an optimum product at an             servation system, and the customer receives a          of Europe’s most attractive transfer hubs. The         – Special meals: SWISS has the right food for
                                appealingly low price, and with no concessions            confirmation of the booking by e-mail or fax.          airport’s attractiveness has also been further           every taste. Long-haul flights offer the standard     – direct access to the Skymetro
                                in quality terms. Vegetarian and other special            The benefits are convincing: an e-ticket cannot        enhanced with the opening of the new Airside             option of a vegetarian meal. On top of this,
                                meals can also be conveniently ordered online.            be lost, stolen or left inadvertently at home.         Center, which completes its recent Fifth Expan-          SWISS customers can choose from more than             – a separate quiet area with relaxation rooms
                                                                                          An e-ticket does, however, have to be requested        sion. Passport control, lounges, the Pier A gates        20 different special meals including kosher
                                For a more individual approach, SWISS’s call              when the reservation is made.                          and the Skymetro light rail facility to and from         meals, various vegetarian options and Moslem          – new business areas with various workstations
                                centres provide round-the-clock advice on cus-                                                                   Pier E: everything is now ideally accessible to          meals. SWISS also offers special children’s
                                tomers’ travel plans. For those seeking a personal      – Self-check-in: SWISS passengers can neatly             arriving, departing and connecting passengers.           meals that are highly popular with its youngest       – a staffed bar with a relaxing atmosphere.
                                discussion, a visit to one of SWISS’s own city sales      avoid the check-in queues at the airport, by                                                                    passengers. And the company also provides
                                offices, to a SWISS airport ticket office or to their     checking themselves in at a SWISS e-check-in           The improvements in the efficiency of the pro-           meals covering various medicinal dietary needs.
                                own local travel agency with its specialist advisory      machine.                                               cesses on the ground will also facilitate baggage        All special meals need to be ordered in advance.
                                services will be the best option. SWISS’s close                                                                  transfers for passengers with tight connections.         This is most easily done when booking the flight,
                                collaboration with the travel agency sector is a         Any passenger travelling with only carry-on             And this in turn should further enhance the              and can also be done online. All in all, over
                                key element in the whole process of advising on          baggage can simply use their credit card or             airport’s punctuality performance. The new user          300 000 SWISS special meals were ordered
                                and distributing the SWISS air travel product.           Swiss TravelClub card to check themselves in            concept will raise SWISS’s attractiveness as a           and served in 2004.
                                                                                         at a self-check-in machine and obtain their             network carrier for arriving, departing and con-
                                E-travel – today’s travel approach                       boarding card. At Zurich Airport, they can also         necting passengers alike. Which should further
                                SWISS offers its passengers various easy and             use these facilities if they are travelling with just   enhance both SWISS’s competitive position as
                                convenient ways of booking their ticket and              one piece of baggage which they wish to check           Switzerland’s airline and Zurich Airport’s role as
                                obtaining their boarding card, to make their travel      in. All they need to do is insert their ticket into     the country’s air travel hub.
                                as simple and flexible as possible. “E-travel” is a      the machine and enter their seating preference:
                                major step in this direction, providing passengers       a few seconds later, they’ll have their boarding
                                with solutions that are closely geared to their          card in their hands.
                                needs when planning their trip, booking their
                                flight and collecting their tickets.



12                                                                                                                                                                                                                                                                                                                13
Swiss International Air Lines                          Products and services                                 Swiss International Air Lines   Products and services
Annual Report 2004                                     SWISS: tailored to your needs                         Annual Report 2004              Swiss WorldCargo




                                                                                                             Swiss WorldCargo


SWISS passengers arriving in Zurich, meanwhile,        Varied and creative: the SWISS magazine                                               Whether they are moving general cargo or seek-        Special products and dedicated services are play-
can freshen up in the Swiss Arrival Lounge.            Each issue of SWISS’s inflight magazine offers                                        ing customised origin-to-destination care for         ing an ever-growing role in the air cargo industry.
The lounge, which features no fewer than ten           a closer look at a selected SWISS destination.                                        temperature-sensitive goods, express consign-         Swiss WorldCargo focuses on such niche mar-
separate showers, is open from 06:00 to 13:00          The monthly publication helps the time fly by                                         ments or valuables, forwarders and logistics          kets. The unit increased the proportion of its total
and is available free of charge to Swiss First and     aloft with interesting reports, fascinating photo                                     companies all over the globe turn to Swiss            revenues generated by its special products by
Swiss Business passengers. Swiss Economy               features and a host of information about Switzer-                                     WorldCargo. With its dedication to the highest        some two percentage points in 2004. And further
passengers can also make use of its facilities for     land, innovative products and SWISS itself.                                           service quality standards in airport-to-airport       product development and differentiation remain
a CHF 30 fee.                                                                                                                                cargo transport and its innovative product            a primary marketing objective.
                                                       Duty-free shopping at 30 000 feet                                                     portfolio, Swiss WorldCargo enjoys a high share
To New York (Newark) by business jet                   Duty-free shopping can be a delightful experi-                                        of repeat customers, and consistently delivers        Swiss WorldCargo is committed to delivering
SWISS’s Zurich–New York (Newark) route is now          ence high above the clouds. SWISS passengers                                          a strong business performance.                        quality airfreight services in which care and
served six times a week by an exclusive Boeing         on longer flights (and on European flights of over                                                                                          expertise are a matter of course. It delivers them,
Business Jet. The new service, which was intro-        90 minutes) can shop without leaving their seat.                                      As the cargo business unit of Swiss International     too: the unit has earned several international
duced in mid-January 2005, enables SWISS to            The inflight sales catalogue in each seat pocket                                      Air Lines Ltd., Swiss WorldCargo markets the          distinctions, including the Logistics Management
offer an attractive and competitive product that is    contains an attractive selection of items at prices                                   airfreight capacity of SWISS’s aircraft fleet, the    “Quality Cargo Airline” award.
specifically geared to business travellers’ needs.     that are lower than in Swiss retail shops. The                                        capacity of a dedicated Airbus A300 freighter
                                                       range includes Swiss watches, sunglasses, jewel-                                      and several further capacities that are shared        Swiss WorldCargo also has a well-balanced
The specially-tailored service includes a carefully-   lery, scarves, practical electronic devices and                                       with partner airlines. For the 2005 summer time-      geographical revenue mix, and operates dedi-
coordinated timetable and short boarding and           more.                                                                                 table period, Swiss WorldCargo offered airfreight     cated sales areas in Europe, the Middle East &
deplaning times. The cabin also features just                                                                                                capacity directly from Switzerland to 71 destina-     Asia, Africa and the Americas.
56 seats, giving the flight a genuine club-like am-                                                                                          tions worldwide on SWISS’s scheduled services
bience. Comfort on board is further enhanced                                                                                                 and dedicated cargo flights.                          Customised products and services
by the lie-flat seats with their generous pitch of                                                                                                                                                 Swiss WorldCargo aims to create genuine added
152 centimetres. And the inflight cuisine is fully                                                                                           Codeshare cargo services with selected partners       value for its customers. In addition to general
up to long-haul Swiss Business standards.                                                                                                    and interline agreements with a wide range of         cargo, the unit focuses on niche markets that
                                                                                                                                             airlines further expand the Swiss WorldCargo          offer high value-adding potential. Such specialist
The Business Jet – a Boeing 737-800 – is oper-                                                                                               destination portfolio. New York–Basel and Basel–      markets include express cargo, valuables ship-
ated on SWISS’s behalf by PrivatAir, a Geneva-                                                                                               Seoul services are operated by Korean Air Cargo;      ments, theft-protected shipments, mail and per-
based company that specialises in business                                                                                                   and other important partners include American         ishable or temperature-sensitive goods. Swiss
aviation. The inflight product has been carefully                                                                                            Airlines on routes to and within the United States,   WorldCargo offers an innovative product portfolio
developed according to SWISS’s specifications.                                                                                               Japan Airlines on the Tokyo–Zurich route during       to serve each of these markets and their partic-
The flight continues to operate under the                                                                                                    summer and MNG Airlines, which recently               ular cargo transport needs.
LX 18/19 flight number, though the aircraft itself                                                                                           launched a new freighter service between Kara-
is in PrivatAir colours. With its 27 years in the                                                                                            chi, Istanbul, Riyadh and Zurich.
business aviation sector, PrivatAir is the perfect                                                                                                                                                 Revenue share by product group
partner for SWISS for this innovative operation.                                                                                             With its large vehicle fleet, Swiss WorldCargo also   in 2004
                                                                                                                                             has one of the most comprehensive trucking net-
                                                                                                                                             works in Europe and around the world, connect-             General Cargo
Zurich – New York (Newark)                                                                                                                   ing ground transportation with air cargo transport         Swiss Mail                               76.4 %
                                                                                                                                             aboard SWISS aircraft and those of its partner             Swiss X-Presso     6.1 %
LX 18 12345-7         ZRH 16:55        EWR 20:10                                                                                             airlines.                                                  Swiss Valuables
LX 19 12345-7         EWR 21:40        ZRH 11:25                                                                                                                                                        Swiss Argus     9.6 %
                                                                                                                                             A successful business year
                                                                                                                                             SWISS’s cargo unit posted a consistently strong
                                                                                                                                             performance throughout 2004 and made a sub-                                  7.4 %
                                                                                                                                             stantial contribution to overall earnings results.                             0.5 %

                                                                                                                                             Swiss WorldCargo transported 208 165 tonnes of
                                                                                                                                             freight, accumulating 1.14 billion freight tonne-
                                                                                                                                             kilometres in 2004, and registered an interconti-
                                                                                                                                             nental cargo load factor (by volume) of 86.3 per
                                                                                                                                             cent. The high load factors were posted while
                                                                                                                                             keeping average yields per tonne of cargo trans-
                                                                                                                                             ported at prior-year levels – a sizeable achieve-
                                                                                                                                             ment in what was a fiercely competitive business
                                                                                                                                             environment.




14                                                                                                                                                                                                                                                  15
Swiss International Air Lines                           Products and services                                                                                         Swiss International Air Lines                            Products and services
Annual Report 2004                                      Swiss WorldCargo                                                                                              Annual Report 2004                                       Swiss WorldCargo




A unique product portfolio                              Time-critical consignments –                            Temperature-sensitive goods                           A genuine emergency
                                                        a growing market                                        With pharmaceutical and biotech products,
Swiss General Cargo: The quality transport              If, in its early days, the international “express”      there’s a great deal at stake. The high value of      80 per cent of the pharmaceuticals for the Pakistani domestic health market are manufactured locally.
product for general freight and special goods           sector was synonymous with couriers carrying            these goods, especially in terms of their impact      But around 95 per cent of cold-chain products such as vaccines and biotech-based pharmaceuticals for
consignments.                                           bags of documents on commercial flights, this           on people’s health, prompts manufacturers to          hepatitis and cancer are imported. One of the oldest and largest local pharmaceutical manufacturing
                                                        has expanded dramatically in the last two de-           devote large amounts of time and resources to         companies, Feroznos Laboratories, has licensed the manufacturing of its oncology and biotech range to
Swiss X-Presso: Swiss X-Presso and Swiss                cades to the transportation of any kind of freight.     establishing an efficient logistics flow. And the     a partner company in Argentina, and regularly performs import operations from Buenos Aires.
X-Presso XL are ultra-fast top-quality airport-         In fact, with business cycles becoming shorter all      choice of “fast” and “trustworthy” transportation
to-airport products for urgent and time-critical        the time, speed is now a crucial factor for all kinds   partners is a key element in those endeavours.        Last November, the local stocks of such life-saving medicines had dwindled dangerously low, to the ex-
consignments with no weight restrictions.               of goods: what is ordered today often needs to                                                                tent that supplies would have to be delivered to Karachi from Buenos Aires within three days. That posed
                                                        be delivered tomorrow, and express consign-             The integrity of substances such as vaccines,         quite a challenge for an air cargo carrier: there are no direct flights between the two cities; the shipment
Swiss Valuables: The high-quality air cargo prod-       ments are increasingly replacing general cargo          plasma-based products or hormones can only be         would have to go through several transfer points; and a constant temperature of 2–8°C would have to be
uct for all kinds of valuable consignments, offering    shipments.                                              ensured by keeping them within precise temper-        maintained throughout the journey to keep the properties of the substances intact.
precision, reliability and absolute discretion.                                                                 ature ranges throughout their transport. Given
                                                        Modern distribution concepts are often based            that ambient temperatures can vary from –50° to       The shipment was initially booked with another air cargo carrier. But, at the very last minute, the carrier
Swiss Argus: The Swiss WorldCargo product for           on minimal storage, requiring fast and reliable         +50°C, and that a variation of more than 5°C can      cancelled its Karachi flight, exacerbating the situation. By the time Feroznos made a new booking with
goods vulnerable to theft. It also provides excellent   logistics. The express business today is domi-          often cause damage, meeting the manufacturer’s        Swiss WorldCargo on November 7, its local stocks had been exhausted: if the new supplies were not
protection against pirating or improper use.            nated by 24-hour guaranteed and next-day de-            cool-chain needs can prove quite a challenge.         delivered by November 11, a very real threat would be posed to the lives of patients on medication and in
                                                        liveries. Shippers, forwarders, logistics providers                                                           the midst of their treatment cycles.
Swiss Mail: Swiss WorldCargo’s quality product          and courier services all acknowledge that high          Technology plays an important role here. Today’s
for international postal consignments with priority     reliability, constant consignment monitoring and        market leaders in temperature-controlled con-         Top speed and optimum temperature control
treatment, reliability and Swiss-style discretion.      competitive rates are as crucial as speed to the        tainers such as Envirotainer offer sophisticated      So what is a carrier best advised to do in such circumstances? How can speed be combined with opti-
                                                        success of their express operations.                    devices that allow temperatures between –20°C         mum temperature control through two or more transfer points and across two or more continents?
Swiss Perishables: The high-quality solution for                                                                and +20°C to be maintained. The air cargo car-
perishable and time-critical goods, offering con-       Airport-to-airport products for urgent or time-         riers themselves also have cutting-edge tracking      The prime focus must be on organising the best possible itinerary, and on assigning the shipment a
stantly-refrigerated and temperature-controlled         critical consignments are gaining more and more         systems and state-of-the art alarm devices            loading priority. This is, in fact, the main feature of express consignments, with their ultra-short accep-
transport between –20°C and +20°C.                      market share. Besides urgent business docu-             available to permit seamless real-time monitoring     tance, transfer and delivery times and their special acceptance and handling processes.
                                                        ments, newspapers, diagnostic specimens, in-            of the status of each shipment and allow imme-
                                                        time production material and perishables, virtu-        diate corrective action to be taken if required.      On the temperature control front, the main essential is the provision of a special refrigerated unit
                                                        ally any kind of commodity is now often shipped                                                               loading device (ULD) at the point of departure. But, since most refrigerated ULDs only work properly
                                                        “express”, from live tropical fish to fruits and        Still, the best technology in the world requires      at a certain ambient temperature, the cargo holds of all the aircraft involved also have to be heated,
                                                        vital spare parts. In some cases, in fact – such as     skilled human application to be used to its full      and this entails due notification of the flight deck crew. In this specific case, to maintain the optimum
                                                        pharmaceutical and biotech products – these             potential. Most containers are kept refrigerated      temperature of 2–8°C throughout the journey, an ambient temperature of +15°C had to be ensured
                                                        shipments can even be a life-or-death affair.           with dry-ice and battery-feeding; so proper re-       during the air transportation. Battery changing and re-icing may also need to be scheduled in the cargo
                                                                                                                icing and prompt battery exchange by dedicated        facilities at some of the transfer airports, depending on the length of the journey and the features of
                                                                                                                and well-trained staff are essential to provide the   the ULD used.
                                                                                                                cool-air ventilation needed to maintain stable
                                                                                                                temperatures throughout the cool chain.               Managing the unexpected
                                                                                                                                                                      In this particular case, the problem became even more challenging: no refrigerated unit was available
                                                                                                                Needless to say, the whole process involves nu-       on departure from Buenos Aires on November 7. But, with special packaging (of styrofoam containers
                                                                                                                merous parties. And smooth communication              with gel bags packed into cardboard boxes), the required temperature could be maintained for the first
                                                                                                                flows between them are as crucial to the success      two-hour leg of the journey to the first transfer point in São Paulo. Here, though, it was vital to transfer
                                                                                                                of these operations as a close and constructive       the goods to a temperature-controlled unit in the shortest possible time – or, to put it in cargospeak, with
                                                                                                                collaboration that makes the most of all the          “top loading priority”.
                                                                                                                synergies available.
                                                                                                                                                                      Communications between the carrier, the forwarder and the shipper have to run smoothly, too. Needless
                                                                                                                                                                      to say, all of the parties involved want to be fully informed at every stage of the shipment. The track-and-
                                                                                                                                                                      tracing devices available on the carrier’s website offer real-time information on the shipment status. But
                                                                                                                                                                      direct contact between shipper and carrier is equally vital, to allow swift and effective solutions to be
                                                                                                                                                                      found to any problems that may occur.

                                                                                                                                                                      On-time delivery
                                                                                                                                                                      The Feroznos consignment fulfilled all its shippers’ and forwarders’ needs. After a safe trip via Zurich,
                                                                                                                                                                      the shipment arrived in Karachi on November 11, on time and in excellent order. Thanks to the combined
                                                                                                                                                                      efforts of all the various partners involved, under the overall supervision of Swiss WorldCargo, an
                                                                                                                                                                      optimum itinerary had been selected, temperature control maintained and optimum communications
                                                                                                                                                                      upheld with the customer. And – thanks in no small part to Swiss WorldCargo and its resources and
                                                                                                                                                                      skills – the medicines reached the people who needed them.




16                                                                                                                                                                                                                                                                                   17
Marcel Biedermann
Vice-President Intercontinental Markets
photographed in the new Boeing Business Jet
of PrivatAir
Swiss International Air Lines   The 2004 business year   Swiss International Air Lines   The 2004 business year
Annual Report 2004                                       Annual Report 2004




                                The 2004
                                                         Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                               and the CEO                           7



                                                                                         Products and services                 SWISS: tailored to your needs       12


                                business year                                            The 2004 business year
                                                                                                                               Swiss WorldCargo



                                                                                                                               Substantial progress towards
                                                                                                                                                                   15




                                                                                                                               a competitive company               22
                                                                                                                               2004 financial results              24
                                                                                                                               SWISS at a glance                   26



                                                                                         Facts and figures                     Traffic results for 2004            34
                                                                                                                               The route network                   36
                                                                                                                               The aircraft fleet                  38



                                                                                         Environmental and political affairs   SWISS and the environment           44
                                                                                                                               Aeropolitical affairs               48



                                                                                         The fascination of flying             SWISS, a network carrier            54
                                                                                                                               The Operations Control Center       56



                                                                                         Corporate governance                                                      62




                                                         Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                               Consolidated balance sheet          77
                                                                                                                               Consolidated statement of
                                                                                                                               changes in shareholders’ equity     78
                                                                                                                               Consolidated cash flow statement    79
                                                                                                                               Notes to the consolidated
                                                                                                                               financial statements                 80
                                                                                                                               Report of the Group Auditors        126
                                                                                                                               Five-year review                    127



                                                                                         Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                               Balance sheet                       131
                                                                                                                               Notes to the financial statements   132
                                                                                                                               Report of the Statutory Auditors    141



                                                                                         Contacts                                                                  144
Swiss International Air Lines   The 2004 business year                                                                                        Swiss International Air Lines                            The 2004 business year
Annual Report 2004              Substantial progress towards                                                                                  Annual Report 2004                                       Substantial progress towards
                                a competitive company                                                                                                                                                  a competitive company




Substantial progress towards
a competitive company

                                SWISS put a clear focus on enhancing its com-           year-on-year increase in its load factors. The        An improved cost structure                               A partnership agreement has already been con-          SWISS further announced a reorganisation of its
                                petitiveness throughout 2004. The “Foundation           company introduced a more user-friendly and           SWISS substantially reduced its costs in the             cluded with Air France for the Geneva–Paris route.     call centres for the Swiss market in mid-February.
                                for Winning” cost reduction and revenue raising         significantly faster online booking facility on       course of 2004 to give itself a more competitive         In the course of the 2005 summer schedules, and        The new arrangement entails closer collaboration
                                programme initiated the previous year had de-           its www.swiss.com website in spring 2005              cost base within the international air transport         by May 1 at the latest, the agreement will see the     with Mindpearl, the company’s fully-owned sub-
                                livered significant improvements by mid-2004.           to help further increase sales via this direct        industry. The first benefits of the restructuring        ten daily flights operated by Air France published     sidiary which specialises in telephone sales. As a
                                The actions taken were based on three strategic         distribution channel.                                 measures implemented were actually reflected in          as codeshare services, while SWISS ceases its          result, three of the four SWISS call centres in
                                pillars: concentrating flight operations on a sus-                                                            results at the end of 2003. But the full impact of       own operations on the route. The new arrange-          Switzerland will cease operations. The SWISS call
                                tainably profitable route network, substantially       To identify and exploit further improvement            these actions was only felt in 2004.                     ment will give SWISS customers a choice of ten         centre in Basel will be expanded by at least ten
                                reducing costs and launching the new “SWISS in         potential, the Management Board created a                                                                       frequencies a day between the two cities instead       positions. Customers will continue to receive the
                                Europe” product.                                       “Continuous Improvement SWISS” (CIS) project           Unit costs or costs per available seat-kilometre         of the present six.                                    usual high-quality service. Mindpearl already
                                                                                       team in summer 2004. The CIS team was subse-           (CASK) for the first six months of 2004 were 2.2 %                                                              successfully provides telephone call centre ser-
                                – The SWISS route network was resized. Available       quently active at a supradivisional level, devising    below their prior-year level. CASK for the second        The network modifications planned will lead to         vices for almost all SWISS markets around the
                                  seat kilometre (ASK) capacity at the end of          and launching various projects and also making a       half-year was 2.7 % above its 2003 equivalent,           the reduction of the aircraft fleet by at least        world.
                                  2004 was 17.9 % below its equivalent at the end      key early contribution to preparations for the         but this is due largely to the impact of higher fuel     13 regional aircraft. Which aircraft types will be
                                  of the previous year. Further codeshare agree-       actions designed to give SWISS a sustainably           prices: if fuel costs are excluded, CASK for the         affected is currently the subject of ongoing           The current surplus of personnel in some parts
                                  ments were concluded with partner airlines to        competitive position which were communicated           second six months was 3.2 % below the same               negotiations with candidate partner airlines and       of the company, the planned downsizing of the
                                  ensure that an extensive range of air services       in January 2005.                                       period of the previous year.                             potential purchasers of the aircraft concerned.        aircraft fleet and the endeavours to increase
                                  could continue to be offered.                                                                                                                                                                                               productivity companywide will lead to the elimi-
                                                                                       Yields under pressure, but a positive RASK             While the significant cost economies effected            Further cost economies are expected to be              nation of 800 to 1 000 positions from the SWISS
                                – Clear progress was achieved on the cost front. A     Despite the economic recovery in Europe, yields –      have already delivered substantial improvements,         achieved through negotiations on the company’s         workforce. The company is working with its
                                  substantial contribution was made here through       revenue per passenger-kilometre – are still under      CASK must be further reduced, especially in view         collective labour agreements. All SWISS em-            unions to seek solutions that are as socially ac-
                                  productivity increases among the company’s           pressure throughout the European air transport         of the current erosion of fares, which is continuing     ployees – cockpit, cabin, ground staff and man-        ceptable as possible for the personnel affected.
                                  personnel. The total number of full-time equiv-      sector. The market is still suffering from persis-     in 2005.                                                 agement personnel – should be more produc-             The reductions will be effected over an extended
                                  alents (FTEs) on the Group payroll at the end        tent overcapacity and a steady erosion of fares.                                                                tively deployed. In addition to increases in           period, but will be completed by mid-2006.
                                  of 2004 was 1 447 or 17.9 % lower than at the        The growing ranks of low-cost carriers active in       Further measures towards a                               efficiency and productivity, salary structures         Around one-third of the reductions are expected
                                  end of the previous year. Personnel expenses         the market have further intensified competition.       competitive position                                     should also be aligned more closely to the             to be achieved through natural employee turn-
                                  saw a 19.2 % year-on-year decline. Further effi-     Some of these operators have also found a foot-        Despite the enhancements achieved, studies               competitive environment.                               over.
                                  ciency enhancements are still required, how-         hold in Switzerland: while low-cost carriers ac-       suggest that SWISS’s European business in
                                  ever. SWISS also agreed more advantageous            counted for 4 % of all passengers in the Zurich        particular cannot be operated profitably with the        Substantial cost reductions should also be             All in all, SWISS is seeking to lower its net annual
                                  terms and conditions with most of its major sup-     market in 2002, that share stood at 14 % in 2004.      present production structures. In view of this,          achieved through further contractual negotia-          costs by approximately CHF 300 million. This
                                  pliers. Renewed efforts should deliver further                                                              the Management Board presented a package of              tions with all the company’s suppliers. The costs      recurring improvement should be achieved in full
                                  improvements here, too, especially in the air-       SWISS did, however, see a positive development         measures in mid-January 2005 which should lay            of the external maintenance of the medium-             from 2007 onwards.
                                  craft maintenance field.                             of its revenue per available seat-kilometre, or        the foundations for making SWISS sustainably             haul and long-haul fleets, which are still far too
                                                                                       RASK. This is calculated from the load factor and      competitive and give the company greater scope           high, are a cause of particular concern. Despite
                                 Some of the cost savings achieved were nullified      the yield achieved and, together with cost per         for investment and future growth.                        efforts that have now been continuing for some
                                 by the record levels to which fuel prices rose        available seat-kilometre or CASK, is a key figure                                                               18 months, the cost reductions sought in this
                                 in the course of the year. The average price of       for an airline’s operating result. SWISS raised its    SWISS aims to focus even more intensely on prof-         area have still not been achieved. Swiss Interna-
                                 Brent crude oil in 2004 was approximately 34 %        RASK for the first six months of 2004 by 3.6 %         itable markets, and to take further action to raise      tional Air Lines Ltd. and SR Technics Switzerland
                                 above its prior-year level, and as much as 68 %       compared to the prior-year period. The increase        its productivity and create competitive business         have referred their dispute over the interpretation
                                 above the average of the last ten years. Changes      was even more substantial for the second six           structures. It further intends to make full use of its   of the full support contract concerned to a court
                                 in the price of Brent are a good indicator of         months at 3.9 %, giving a total year-on-year RASK      attractive Zurich hub to strengthen its position in      of arbitration. The partners’ bilateral negotiations
                                 trends in the price of aviation kerosene, though      improvement of 3.8 %. The RASK result includes         the Swiss home market. The present range of              are continuing parallel to these endeavours.
                                 jet fuel may show stronger or weaker fluctua-         the fuel surcharges which SWISS has been adding        services to and from Zurich will be retained, and
                                 tions. Indeed, average jet fuel prices rose even      to the price of its tickets since May 2004. In line    should be further expanded through codeshare             The outsourcing of IT operations to Swisscom IT
                                 faster than the price of Brent in 2004. The in-       with the rest of the industry, SWISS introduced        operations. Greater use of larger-capacity aircraft      Services which was due to be formally effected
                                 creases in kerosene prices added CHF 120 mil-         this surcharge in a series of steps in the course of   on Zurich-based services should support this             on March 1, 2005 is well under way. The new ar-
                                 lion to SWISS’s fuel costs for the year. Around       2004, in response to the steep rise in the price of    endeavour. This not only increases customers’            rangement enables SWISS to focus even more
                                 30 % of this was recouped through the fuel sur-       aviation fuel.                                         benefits; the lower resulting costs per available        closely on its core business. It will also lower the
                                 charges added to air ticket prices.                                                                          seat also provide SWISS with greater scope to            company’s IT infrastructure costs, place formerly
                                                                                       The positive RASK trend can be attributed to var-      compete with the low-cost carriers. SWISS also           fixed costs on a variable footing and smooth out
                                – SWISS in Europe, the European product                ious actions taken to increase revenue volumes.        aims to better exploit existing revenue potential.       investment peaks.
                                  launched in late summer 2003, established            These include the modifications already effected
                                  itself in the market and made its own contribu-      to the route network. Additional revenue potential     Services in Geneva and Basel will be transformed
                                  tion to the company’s turnaround endeavours.         was also located and tapped by adopting a more         into cost-covering production systems. Routes
                                  The goals set on the cost side were achieved.        sophisticated pricing and revenue management           which SWISS does not operate itself under the
                                  But booking volumes have not developed in line       model.                                                 new approach will be transferred to partner air-
                                  with expectations. With increasing pressure                                                                 lines wherever possible, to ensure that customers
                                  from competitors – and from the low-cost car-                                                               continue to enjoy attractive flight schedules.
                                  riers in particular – SWISS recorded only a slight




22                                                                                                                                                                                                                                                                                                              23
Swiss International Air Lines   The 2004 business year                                                                                         Swiss International Air Lines                            The 2004 business year
Annual Report 2004              2004 financial results                                                                                         Annual Report 2004                                       2004 financial results




2004 financial results


                                EBIT improved by CHF 376 million                        facilities. SWISS also abolished its previous          A positive cash flow from operating activities           Cash and cash equivalents at the end of 2004
                                Swiss International Air Lines (Group) generated         commission payments to travel agencies in              of CHF 189 million                                       Cash and cash equivalents totalled CHF 481 mil-
                                total income from operating activities of               Switzerland when it introduced its new distri-         – Cash flow from operating activities: The nega-         lion at December 31, 2004, while a further
                                CHF 3 642 million for 2004 (prior year: CHF 4 126       bution model on January 1, 2005: the travel              tive cash flow of minus CHF 340 million in 2003        CHF 4 million was held in fixed-term deposits.
                                million). Earnings before interest and taxes (EBIT)     agencies now debit the customer directly for the         was turned into a positive CHF 189 million in          Cash and cash equivalents had stood at
                                for the year improved CHF 376 million to minus          services they provide. In adopting the new               2004. The CHF 529 million improvement was              CHF 503 million at the end of 2003.
                                CHF 122 million (prior year: minus CHF 498 mil-         arrangement, SWISS is following a global trend           achieved through substantial progress on both
                                lion before restructuring costs). The EBIT result       in the air transport sector. Air traffic control         the cost and the revenue fronts. Active cash           SWISS had additional liquidity of CHF 89 million
                                was burdened by a CHF 174 million impairment            costs declined as a result of the substantially          management also played a major role in stem-           available within its credit facilities at December
                                for value adjustments to regional aircraft and          fewer flights performed in 2004. Passenger               ming the drain on liquid funds.                        31, 2004. This amount varies depending, among
                                buildings. However, the EBIT result also includes       taxes for charter operations declined in line with                                                              other things, on the exchange rates of the US
                                non-recurring income amounting to CHF 163 mil-          the smaller number of charter flights operated.        – Cash flow from investing activities amounted to        dollar and the Euro against the Swiss franc.
                                lion. This consists of a second-quarter CHF 68                                                                   CHF 5 million (prior year: CHF 45 million). This
                                million book gain deriving from the settlement of      – Personnel expenses totalled CHF 774 million in          included a cash outflow of CHF 88 million on           Equity ratio slightly improved and
                                the legal dispute with Holco and a further CHF 95        2004 (prior year: CHF 958 million). Personnel           interior components, spare parts and consum-           net debt reduced
                                million accrued in the fourth quarter, primarily         numbers had declined to 6 625 full-time equi-           able materials for the aircraft fleet. A total cash    Group shareholders’ equity totalled CHF 848 mil-
                                from provision adjustments and from non-re-              valents by December 31, 2004 – 1 447 positions          inflow of CHF 90 million was generated by the          lion at December 31, 2004 (prior year: CHF 1 022
                                curring income relating to the transfer of slots         (or 17.9 %) fewer than at the end of 2003.              transfer of slots at London Heathrow Airport, a        million). However, the balance sheet contraction
                                at London Heathrow Airport, for which British            The average number of employees (in full-time           reduction in cash deposits connected to the            and the resizing of the company improved overall
                                Airways made a part-payment in this period.              equivalents) in 2004 showed an even bigger              return of aircraft and aircraft sales. Various other   balance sheet ratios. The equity ratio rose to
                                The increase in fuel prices to record levels added       year-on-year decline: with a large number of            investments and divestitures resulted in a net         27.2 %, a slight 0.8-percentage-point improve-
                                approximately CHF 120 million of operating               the positions eliminated in 2003 only disap-            cash inflow of a further CHF 3 million.                ment on the end of 2003. The net financial
                                expenses in 2004.                                        pearing in the fourth quarter with the expiry of                                                               debt position improved substantially from
                                                                                         the corresponding notice periods, the average         – Cash flow from financing activities totalled           CHF 703 million to CHF 594 million. This reduc-
                                – Cost of materials, which includes the costs of         number of employees in 2003 was substantially           minus CHF 211 million (prior year: minus               tion was achieved despite the company’s
                                  the maintenance of the aircraft fleet and the          higher than in 2004. Personnel expenses saw a           CHF 326 million). A total of CHF 151 million of        investment in two new Airbus A340 aircraft.
                                  cost of jet fuel and inflight catering, amounted       19.2 % year-on-year decline. Further efficiency         cash and cash equivalents was used for amorti-
                                  to CHF 1 020 million for 2004 (prior year:             enhancements are still required, however. The           sations on aircraft finance lease liabilities, while   On August 31, 2004 a group of 29 shareholders
                                  CHF 1 262 million). The increase in fuel prices to     6 625 full-time positions at the end of 2004 were       CHF 128 million was spent on debt repayments.          accounting for 86.1 % of SWISS’s total share
                                  record levels added approximately CHF 120 mil-         occupied by 7 909 employees around the world.           A further cash outflow of CHF 56 million was           capital agreed to extend the lock-up agreement
                                  lion to this item, neutralising part of the gains                                                              incurred through ordinary interest payments            covering the shareholdings to which they sub-
                                  made through restructuring activities: while         – Impairments totalling CHF 174 million were              on finance lease liabilities, while CHF 2 million      scribed under the capital increase effected upon
                                  some of its cost savings were due to the reduc-        effected in the 2004 financial statements for           was spent on dividends to minorities. These            the company’s foundation to August 31, 2005.
                                  tion in business volumes, SWISS also substan-          value adjustments to regional aircraft and              amounts were partially offset by cash inflows
                                  tially lowered its unit costs. Aircraft mainte-        buildings.                                              totalling CHF 126 million. SWISS made full use
                                  nance costs were tangibly reduced through effi-                                                                of a CHF 50 million credit facility provided by
                                  ciency enhancements. Further cost economies          – The CHF 6 million loss on the disposal of fixed         Barclays Bank on March 16, 2004. Following
                                  were realised through the replacement of the           and intangible assets (prior year: CHF 13 mil-          a partial repayment in the fourth quarter,
                                  Boeing MD-11 by the Airbus A340, with its lower        lion) relates to book losses on the sales of three      CHF 43 million of this amount remained in cash
                                  maintenance needs. On the inflight services            Saab 2000 aircraft.                                     and cash equivalents at year-end. In the fourth
                                  front, SWISS embarked on a new form of colla-                                                                  quarter SWISS took out a loan of CHF 15 million
                                  boration with its suppliers which, with the intro-   – Financial expenses for 2004 amounted to                 from Unique (Flughafen Zürich AG) and drew
                                  duction of the new European inflight service           CHF 64 million (prior year: CHF 53 million). The        CHF 61 million from the CHF 325 million se-
                                  concept, permitted sizeable savings to be made.        increase is due largely to the higher expenditure       cured credit facility closed with an international
                                                                                         on aircraft operated under finance leases fol-          banking syndicate in October 2004.
                                – Cost of services for 2004 amounted to                  lowing the replacement of the Boeing MD-11
                                  CHF 1 170 million (prior year: CHF 1 401 mil-          by the Airbus A340. A foreign exchange impair-
                                  lion). The various items that make up this cost        ment of CHF 23 million resulted from a can-
                                  position showed differing trends. The decline in       celled aircraft order. The CHF 70 million in finan-
                                  handling and landing fees was due to the re-           cial income derives mainly from non-cash
                                  duction in passenger numbers. This reduction in        foreign-currency gains on liabilities, and reflects
                                  volumes also affected distribution costs, which        the positive net impact of the weaker US
                                  were further diminished by the abolition of com-       dollar. The consolidated net result for the year
                                  mission payments (which was effected in some           amounted to a loss of CHF 140 million – a
                                  markets outside Switzerland in the course of           CHF 547 million improvement on the prior-year
                                  2004) and the increased use of online booking          loss of CHF 687 million.




24                                                                                                                                                                                                                                                           25
Swiss International Air Lines   The 2004 business year                                                                                      Swiss International Air Lines                                 The 2004 business year
Annual Report 2004              SWISS at a glance                                                                                           Annual Report 2004                                            SWISS at a glance




SWISS at a glance


                                SWISS is a network carrier which connects             Finance: a focus on liquidity                         Personnel numbers at Dec 31
                                Switzerland with Europe and the world from its        Stabilising SWISS’s liquidity was a priority objec-
                                Zurich hub. The company positions itself as a         tive in 2004. With substantial improvements
                                quality airline.                                      on both the cost and the revenue front, operating
                                                                                      cash flow for 2004 was a CHF 529 million im-          Flight attendants
                                From Geneva SWISS offers various direct flights       provement on the previous year. SWISS posted a
                                to destinations in Europe and a daily service to      positive cash flow from operating activities of            2004
                                New York JFK. SWISS’s Geneva-based network            CHF 189 million, which compares to a negative              2003
                                also extends to further destinations, which are       cash flow of CHF 340 million for 2003. Active
                                served on a codeshare basis in collaboration with     cash management was also instrumental in                                              2 203         2 578
                                partner airlines. SWISS offers nine daily flights     stemming the drain on liquid funds.
                                between Geneva and Zurich, ensuring that the
                                city and Western Switzerland remain excellently       To further strengthen its liquidity base, SWISS
                                connected to its Zurich hub.                          closed a credit agreement with an international       Pilots
                                                                                      banking syndicate for a CHF 325 million secured
                                In Basel, SWISS aims to continue to provide its       credit facility at the end of October 2004. The            2004
                                customers with a comprehensive range of ser-          credit amount available to SWISS as liquidity              2003
                                vices in cooperation with airline partners. Lugano    under this agreement will gradually increase be-
                                will continue to be served by a partner airline.      tween 2004 and 2006, subject to the fulfilment
                                                                                      of obligations arising from certain aircraft lease                                    1 114         1 270
                                With its route network consolidated and realigned     agreements. The credit agreement was con-
                                to the current market and competitor situation        cluded for a three-year period. In December,
                                with the start of the 2003/04 winter schedules,       SWISS also announced the conclusion of a              Ground personnel
                                SWISS’s corporate restructuring continued large-      three-year CHF 15 million loan agreement with
                                ly behind the scenes throughout 2004.                 Unique (Flughafen Zürich AG).                              2004
                                                                                                                                                 2003
                                Management structure and personnel                    In order to reduce its exposure to foreign ex-
                                                                                                                                                                                          3 453
                                numbers                                               change, interest rate and oil price fluctuation                                       2 654
                                A more efficient and market-oriented manage-          risks, SWISS makes use of hedging instruments
                                ment structure was adopted on September 1,            which are common practice in the airline industry.
                                2004. Four function-based organisation units –        In view of its liquidity situation, however, SWISS
                                Sales & Marketing, Network, Finance and Opera-        refrained from hedging its fuel needs for large       Personnel at subsidiaries
                                tions – are now represented on the Management         parts of 2004. The record high prices of jet fuel
                                Board, the highest management level.                  created a generally extremely difficult market             2004
                                                                                      environment in the course of the year.                     2003
                                The former Marketing & Services division was
                                divided into the divisions of Sales (now Sales &      Having closed its secured credit facility in the
                                Marketing) and Operations. A further change saw       fourth quarter of 2004 and seen fuel prices fall                                      654           771
                                the creation of a new position of Executive Vice-     somewhat from their record high levels, SWISS’s
                                President Corporate Strategy, who is responsible      in-house risk management specialists began to
                                for ensuring the strategic further development of     build up new hedge positions to protect the com-      Total personnel
                                the company’s various business units in line with     pany from price fluctuations, especially in the
                                a coherent overall strategy.                          critical winter months. By December 31, 2004,              2004                                     8 072
                                                                                                                                                                            6 625
                                                                                      the company had hedged approximately 27 % of               2003
                                The number of employees in the Group in full-         its fuel needs for the following 12 months.
                                time equivalent terms had been reduced to 6 625
                                by the end of 2004, meaning that 1 447 positions
                                had been eliminated in the course of the year. The
                                downsizing affected 1 725 employees.
                                                                                                                                            These figures are for full-time equivalents. SWISS employed
                                With further productivity improvements still                                                                a total of 7 909 employees at the end of 2004.
                                needed, major changes will also be seen in 2005
                                in personnel terms. These will centre partly on the
                                Collective Labour Agreements, which are cur-
                                rently being renegotiated. But staff numbers will
                                also be involved. The latest restructuring mea-
                                sures announced in mid-January 2005 will result
                                in the elimination of a further 800 to 1 000 posi-
                                tions by mid-2006.




26                                                                                                                                                                                                                                 27
Swiss International Air Lines                           The 2004 business year                                                                                           Swiss International Air Lines                          The 2004 business year
Annual Report 2004                                      SWISS at a glance                                                                                                Annual Report 2004                                     SWISS at a glance




Sales and distribution                                  Basel enjoys service to 18 European destinations.        Special products and services are growing               Flight operations and technical services               Personnel numbers were reduced by more than
Overcapacity, the rise of low-cost carriers and the     These services, which are operated by SWISS’s            steadily in importance in the air cargo sector.         – Flight operations: The reliability of the com-       20 % in the regional fleet maintenance sector.
growing importance of the Internet as a distri-         own aircraft, form the backbone of the route net-        Swiss WorldCargo serves these niche markets               pany’s flight operations remained very high in       The downsizing was partly due to the fleet re-
bution channel are all changing the competitive         work. On top of this, SWISS also serves numerous         with a range of products that offer the customer          2004. SWISS was able to perform 99.2 % of its        sizing of autumn 2003, but was also achieved
landscape and are forcing the airlines to seek          destinations under codeshare agreements with             sizeable additional benefits. The proportion of           published flights, a further 0.4-percentage-         through increases in efficiency. Technical Ser-
cost economies in their distribution activities, too.   various partner airlines. Together with its part-        its revenues generated by special products                point improvement on the already-high reliabili-     vices conducted an extensive cost reduction
SWISS introduced a new distribution model on            ners, SWISS thus offers its customers an exten-          increased to 23.6 % in 2004, a year-on-year im-           ty level of the previous year.                       programme in 2004 which delivered recurrent
January 1, 2005. The new model ensures greater          sive network of services with connections to all six     provement of two percentage points.                                                                            savings of millions of francs. Efforts here included
cost transparency, by making a clear distinction        continents, along with all the benefits of its attrac-                                                            Punctuality was also improved, but remained           the successful renegotiation of various contracts
between the services provided by the airline and        tive Swiss TravelClub frequent flyer programme.          Charter and special tours                                less than satisfactory. This is due primarily to      with key suppliers.
those provided by the travel agency.                                                                             SWISS also operates its own charter and special          the less-than-ideal use of the capacity at
                                                        The successful partnership between SWISS and             tours business. Two advanced Airbus A320 air-            Zurich Airport owing to limits on the number of       Swiss International Air Lines Ltd. and SR Technics
The new distribution model abolishes the com-           American Airlines was further developed in the           craft are deployed on charter services, largely for      aircraft movements during key departure and           Switzerland have now referred their dispute over
missions which SWISS previously paid travel             course of 2004. Service between Zurich and New           major tour operators. But the SWISS charter unit         arrival periods and the restrictions imposed by       the interpretation of the currently-valid
agencies on the sale of its tickets. The travel         York was enhanced from the start of the 2004/05          also markets surplus capacity from the scheduled         Germany on approaches from the north. SWISS           Full Support Contract to a court of arbitration.
agencies now debit the customer directly for the        winter schedules on October 31 by carefully co-          aircraft fleet, helping raise its productivity.          is making various attempts to alleviate the situ-     They continue to conduct their own bilateral
services they provide. In adopting the new sys-         ordinating the partners’ departures and arrivals.                                                                 ation in collaboration with Zurich Airport, Sky-      negotiations parallel to this.
tem, SWISS is following a global airline industry       As a result, departure times from Zurich are now         – Charter services: SWISS organises various              guide (Switzerland’s air traffic services provider)
trend. The Swiss Federation of Travel Agencies          more clearly staggered. Flights now leave for New          charter flights on behalf of its customers: flights    and the Swiss Federal Office for Civil Aviation.      For commercial reasons, the C Checks (major
was also involved in devising the new model, to         York at 10:00 (to JFK), 13:00 (to JFK) and 16:55           to tourist destinations, special flights for the                                                             maintenance inspections conducted every five
optimise its introduction and acceptance within         (to Newark).                                               Swiss government, VIP flights and flights to           With the downsizing of the cockpit crew corps         years) on two Airbus A320s were successfully
the travel sector.                                                                                                 special events (such as trade fairs). Any SWISS        and the renewal of the aircraft fleet, SWISS          performed at Shannon Aerospace in Ireland.
                                                        SWISS also concluded codeshare agreements                  aircraft can basically be chartered, from an           was faced with strong demand for conversion           SWISS is currently in talks with various mainte-
SWISS intends to make even greater use of the           with various partner carriers in 2004. In addition         Embraer RJ 145 to an Airbus A330 or A340 with          training in 2004. The requirements posed quite        nance providers with a view to issuing further
Internet and substantially increase online sales        to dozens of destinations that can be reached via          up to 230 seats.                                       a challenge in volume terms; but, as expected,        commissions to these suppliers for work not cov-
via its www.swiss.com website. The company              the home airports of SWISS’s airline partners,                                                                    it was successfully risen to by the company’s         ered by the long-term SR Technics agreement.
expects this to generate additional revenue and         customers also benefit from the numerous direct           SWISS also offers its “Rent-a-plane” service for        pilot training organisation.
reduce distribution costs. So, in the past few          services which SWISS can offer under these                one-off charter requests. This product is aimed                                                               SWISS Technical Services in Basel obtained
months, SWISS has invested in modernising its           codeshare agreements. The 2005 summer                     primarily at corporations and private individuals:      A further change in the course of the year            its certification to perform Airbus A320 work
booking engine. The new facility, which was intro-      schedules offer direct codeshare services to 29           a major company excursion, for example, or a            saw cockpit and cabin crews, along with ground        at the end of 2004. As a result, it was able to
duced in spring 2005, is significantly more power-      destinations from Zurich, Geneva and Basel, 23 of         special birthday treat.                                 services, subordinated directly to the Chief          embark on a cabin refurbishment programme
ful and user-friendly. With its state-of-the-art        them in Europe and six overseas. Twelve of these                                                                  Operations Officer. The Operations division is        for eleven of the company’s Airbus A320
technology, SWISS’s www.swiss.com website               destinations with direct codeshare service are           – Special tours: SWISS further acts as a tour            thus responsible for all the company’s operating      aircraft in January 2005.
offers customers a convenient and reliable online       additions to the SWISS route network; the others           operator, organising its own programme of spe-         activities from airport to airport, both on the
facility for booking their flights according to their   are also served by flights operated by SWISS,              cial trips and tours such as city breaks, themed       ground and in the air.
individual wishes and needs.                            with the codeshare agreements offering SWISS               arts and music trips and study tours and visits
                                                        customers the benefit of a more frequent service           that are specifically tailored to a customer’s        – Technical services: SWISS also posted an
Bilateral partnerships expanded                         pattern.                                                   individual needs.                                       encouraging performance in 2004 in terms of
After protracted negotiations, SWISS decided in                                                                                                                            the maintenance of its regional aircraft fleet.
summer 2004 not to proceed with its original plan       Cargo                                                                                                              Fleet reliability was further increased to an im-
to amalgamate its Swiss TravelClub frequent             Swiss WorldCargo, the cargo business unit                                                                          pressive 98.9 %, a rise of 0.3 percentage points.
flyer programme into the British Airways (BA)           of Swiss International Air Lines Ltd., sells the air-                                                              The year also saw a reduction in flight cancella-
Executive Club programme. The decision, which           freight capacity of the 78 aircraft which SWISS                                                                    tions for technical reasons: these declined to
was taken for strategic reasons, also meant             uses to operate its scheduled services. In addition                                                                0.2 %, a 33 % improvement on the previous year,
that the bilateral agreement between SWISS and          to this, Swiss WorldCargo markets the capacity                                                                     and a full 60 % improvement on 2002.
BA could not enter into effect and, as a result,        of an Airbus A300 dedicated freighter and cargo
SWISS would not be joining the oneworld alliance.       capacity on the flights of various partner airlines.
This did not affect SWISS’s bilateral commercial        In the 2005 summer timetable schedules,
(codeshare) agreements with the other oneworld          Swiss WorldCargo offers airfreight services from
alliance members, which remain in effect.               Switzerland to 71 destinations around the world.

SWISS serves 74 destinations around the world in        Swiss WorldCargo carried 208 165 tonnes of
its 2005 summer schedules. The European net-            cargo in 2004, generating 1.14 billion tonne-
work extends to 47 destinations in 22 countries,        kilometres. The intercontinental cargo load
while the intercontinental network comprises            factor (by volume) of 86.3 % was a 1.9-percen-
27 points in 19 countries. A total of 69 destina-       tage-point improvement on the previous year.
tions are served from Zurich: 42 in Europe and          In a fiercely-contested market, Swiss WorldCargo
27 overseas. From Geneva, SWISS serves eight            also maintained its yield, or revenue per tonne
points in Europe along with New York JFK. And           of cargo carried.




28                                                                                                                                                                                                                                                                                     29
Carole Seiler
Instructor Safety & Medical Training
photographed at the Training Center
of Swiss AviationTraining
Swiss International Air Lines   Facts and figures   Swiss International Air Lines   Facts and figures
Annual Report 2004                                  Annual Report 2004




                                Facts and figures
                                                    Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                          and the CEO                           7



                                                                                    Products and services                 SWISS: tailored to your needs       12
                                                                                                                          Swiss WorldCargo                    15



                                                                                    The 2004 business year                Substantial progress towards
                                                                                                                          a competitive company               22
                                                                                                                          2004 financial results              24
                                                                                                                          SWISS at a glance                   26



                                                                                    Facts and figures                     Traffic results for 2004            34
                                                                                                                          The route network                   36
                                                                                                                          The aircraft fleet                  38



                                                                                    Environmental and political affairs   SWISS and the environment           44
                                                                                                                          Aeropolitical affairs               48



                                                                                    The fascination of flying             SWISS, a network carrier            54
                                                                                                                          The Operations Control Center       56



                                                                                    Corporate governance                                                      62




                                                    Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                          Consolidated balance sheet          77
                                                                                                                          Consolidated statement of
                                                                                                                          changes in shareholders’ equity     78
                                                                                                                          Consolidated cash flow statement    79
                                                                                                                          Notes to the consolidated
                                                                                                                          financial statements                 80
                                                                                                                          Report of the Group Auditors        126
                                                                                                                          Five-year review                    127



                                                                                    Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                          Balance sheet                       131
                                                                                                                          Notes to the financial statements   132
                                                                                                                          Report of the Statutory Auditors    141



                                                                                    Contacts                                                                  144
Swiss International Air Lines   Facts and figures                                                                                             Swiss International Air Lines   Facts and figures
Annual Report 2004              Traffic results for 2004                                                                                      Annual Report 2004              Traffic results for 2004




Traffic results for 2004


                                SWISS reported a seat load factor of 74.9 %            Seat load factor for SWISS’s European network
                                for 2004 as a whole, a 2.5-percentage-point im-        amounted to 60.8 %, an improvement of 1.2 per-
                                provement on the previous year. Total annual           centage points on the previous year. While ASK
                                capacity amounted to around 27.5 billion avail-        capacity was 17.4 % below prior-year levels, RPK
                                able seat kilometres (ASK), a 17.9 % reduction         traffic saw a 15.7 % decline. The persistently
                                from its 2003 level. Total traffic volume showed a     strong competitive pressure within Europe, par-
                                more modest 15.0 % decline to around 20.6              ticularly from the continent’s low-cost carriers,
                                billion revenue passenger kilometres (RPK). The        depressed load factors on the European network,
                                modifications to the route network effected            especially in the latter half of the year. The pres-
                                under the corporate restructuring of 2003 and          sure exerted by the low-cost carriers on both the
                                2004 thus had a positive overall impact on             capacity and the pricing fronts is being clearly
                                SWISS’s load factors. The company carried some         felt, particularly in the continent’s larger prime
                                9.2 million passengers in 2004 to destinations all     markets.
                                over the world.
                                                                                       SWISS’s cargo business continued its positive
                                Seat load factor on intercontinental services          performance trend. Swiss WorldCargo transport-
                                totalled 81.3 %, a substantial 3.3-percentage-         ed a total of 208 165 tonnes of freight in 2004,
                                point increase on its prior-year level. ASK capacity   generating a total traffic volume of 1.14 billion
                                was reduced 18.1 % year-on-year, while RPK             cargo tonne kilometres. Intercontinental cargo
                                traffic declined by only 14.7 %. SWISS’s intercon-     load factor (by volume) stood at 86.3 %, 1.9 per-
                                tinental services recorded improved load factors       centage points above its prior-year level.
                                year-on-year for every month between March and
                                December 2004.




34                                                                                                                                                                                                       35
Swiss International Air Lines                        Facts and figures                                                        Swiss International Air Lines              Facts and figures
Annual Report 2004                                   The route network                                                        Annual Report 2004                         The route network




The route network


SWISS scheduled
destinations in the
2005 summer timetable1
As of April 1, 2005




                           Europe                    Bucharest           Istanbul          Milan               Salzburg2      North and                  The Far East    The Middle East     Africa          1 direct flights from

                           Ajaccio                   Budapest            Kiev2             Moscow              Skopje2        South America              Bangkok         Dubai               Benghazi         Switzerland
                           Alicante                  Copenhagen          Krakow2           Munich              Stockholm      Boston                     Hong Kong       Jeddah              Cairo           2 SWISS codeshare
                           Amsterdam                 Dublin              Linz2             Naples              Stuttgart      Chicago                    Kuala Lumpur2   Muscat              Dar es Salaam    destination
                           Athens                    Düsseldorf          Lisbon            Nice                Thessaloniki   Dallas2                    Mumbai/Bombay   Riyadh              Douala
                                                                                                                                                                                                             3 flights operated by
                           Barcelona                 Florence2           London City       Nuremberg           Valencia       Los Angeles                Singapore       Tel Aviv            Johannesburg
                                                                                                                                                                                                              Cirrus Airlines
                           Basel-Mulhouse-Freiburg   Frankfurt           London Heathrow   Olbia               Venice2        Miami                      Tokyo                               Malabo
                           Belgrade                  Geneva              Lugano3           Palma de Mallorca   Vienna         Montreal                                                       Nairobi         4 flights operated by PrivatAir

                           Berlin Tegel              Graz2               Luxembourg        Paris               Warsaw         New York JFK                                                   Tripoli
                           Birmingham                Hamburg             Madrid            Porto               Zurich         New York Newark4                                               Yaoundé
                           Bologna2                  Hanover             Malaga            Prague                             São Paulo
                           Brussels                  Helsinki2           Manchester        Rome

36                                                                                                                                                                                                                                             37
Swiss International Air Lines   Facts and figures                                                                                            Swiss International Air Lines                 Facts and figures
Annual Report 2004              The aircraft fleet                                                                                           Annual Report 2004                            The aircraft fleet




The aircraft fleet


                                On the aircraft fleet front, 2004 was dominated       Fleet renewal                                          The SWISS commercial aircraft fleet1 for the 2004/2005 winter timetable period
                                by the renewal of the long-haul fleet, where the      One of the biggest undertakings in fleet terms in
                                last Boeing MD-11s were superseded by Airbus          2004 was the technical preparation of the with-
                                A340s. The year also brought further develop-         drawn Boeing MD-11s for return to their owners.
                                ments in SWISS’s ongoing restructuring, and the       Of the thirteen MD-11s which were replaced by
                                associated downsizing of the aircraft fleet.          nine brand-new Airbus A340-300s, five had been         Airbus A340
                                                                                      in revenue-earning service at the beginning of         Number: 9
                                Fleet resizing                                        2004. The last SWISS MD-11 performed its final         Average age: 1.1
                                The fleet operating SWISS’s 2004/05 winter            scheduled flight at the end of October.
                                schedules totalled 78 aircraft. Eighteen of these
                                were deployed on long-haul services and 60 on         The withdrawal of the last MD-11 concluded the         Airbus A330
                                medium- and short-haul routes. Two further air-       renewal of the SWISS long-haul fleet. The ninth        Number: 9
                                craft were used for charter operations. The SWISS     and currently last Airbus A340 entered revenue         Average age: 5.3
                                commercial fleet deployed on scheduled and            service on June 26. SWISS now operates an all-
                                charter services thus comprised 80 aircraft at the    Airbus fleet of A330s and A340s on its long-haul
                                end of 2004. Two further regional aircraft were       network. The SWISS long-haul fleet had an              Airbus A321
                                operated by SWISS’s Europe Continental Airways        average age of 3.2 years at the end of 2004.           Number: 4
                                S.A. (Crossair Europe) subsidiary. The SWISS                                                                 Average age: 7.1
                                fleet at the end of 2004 was three aircraft smaller   The renewal of the long-haul fleet serves two
                                than it had been at the end of the previous year.     prime purposes. The use of the newer aircraft
                                The year saw the departure of two long-haul           lowers production costs. And the acquisition of        Airbus A320
                                aircraft and the net withdrawal of a further two      this equipment with its state-of-the-art tech-         Number: 12 + 2 charter
                                aircraft from the 50-seater regional fleet, while     nology also confirms SWISS’s clear commitment          Average age: 6.6
                                one additional Airbus A320 was added to the           to the highest levels of product quality (the A340
                                European fleet.                                       offers passengers substantially more travel
                                                                                      comfort) and environmental care.                       Airbus A319
                                The average age of the SWISS commercial fleet                                                                Number: 7
                                was 6.0 years on December 31, 2004. This is very      Successful aircraft marketing                          Average age: 7.6
                                low in international terms: the average fleet age     The intensive efforts made in the aircraft market-
                                among European airlines stood at 9.0 years at the     ing field delivered the desired results: eight
                                end of 2003, and the International Air Transport      Saab 2000s and one Saab 340 were placed with           Avro RJ-100
                                Association (IATA) estimated the world’s airlines     various airlines, generally on multi-year leases, in   Number: 15
                                to have an average fleet age of 10.8 years on the     the course of 2004. Three Saab 2000s were sold.        Average age: 8.0
                                same date.

                                                                                                                                             Avro RJ-85
                                                                                                                                             Number: 4
                                                                                                                                             Average age: 11.6


                                                                                                                                             Embraer RJ-145
                                                                                                                                             Number: 11
                                                                                                                                             Average age: 3.1


                                                                                                                                             Saab 2000
                                                                                                                                             Number: 7
                                                                                                                                             Average age: 6.7




                                                                                                                                                                                                                              1 The term “commercial fleet” refers to all aircraft operated

                                                                                                                                                                                                                               by SWISS in scheduled or charter service.
                                                                                                                                                                                                                               All data are as of December 31, 2004.

                                                                                                                                                                                                                               Two further Saab 2000 aircraft were operated by
                                                                                                                                                                                                                               SWISS subsidiary Europe Continental Airways S.A.
                                                                                                                                                                                                                               (Crossair Europe).

38                                                                                                                                                                                                                                                                                            39
Alexander Arafa
Head of Product
photographed in the Gate Gourmet test kitchen
Swiss International Air Lines   Environmental and political affairs   Swiss International Air Lines   Environmental and political affairs
Annual Report 2004                                                    Annual Report 2004




                                Environmental and
                                                                      Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                                            and the CEO                           7



                                                                                                      Products and services                 SWISS: tailored to your needs       12


                                political affairs                                                     The 2004 business year
                                                                                                                                            Swiss WorldCargo



                                                                                                                                            Substantial progress towards
                                                                                                                                                                                15




                                                                                                                                            a competitive company               22
                                                                                                                                            2004 financial results              24
                                                                                                                                            SWISS at a glance                   26



                                                                                                      Facts and figures                     Traffic results for 2004            34
                                                                                                                                            The route network                   36
                                                                                                                                            The aircraft fleet                  38



                                                                                                      Environmental and political affairs   SWISS and the environment           44
                                                                                                                                            Aeropolitical affairs               48



                                                                                                      The fascination of flying             SWISS, a network carrier            54
                                                                                                                                            The Operations Control Center       56



                                                                                                      Corporate governance                                                      62




                                                                      Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                                            Consolidated balance sheet          77
                                                                                                                                            Consolidated statement of
                                                                                                                                            changes in shareholders’ equity     78
                                                                                                                                            Consolidated cash flow statement    79
                                                                                                                                            Notes to the consolidated
                                                                                                                                            financial statements                 80
                                                                                                                                            Report of the Group Auditors        126
                                                                                                                                            Five-year review                    127



                                                                                                      Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                                            Balance sheet                       131
                                                                                                                                            Notes to the financial statements   132
                                                                                                                                            Report of the Statutory Auditors    141



                                                                                                      Contacts                                                                  144
Swiss International Air Lines   Environmental and political affairs                                                                          Swiss International Air Lines                                    Environmental and political affairs
Annual Report 2004              SWISS and the environment                                                                                    Annual Report 2004                                               SWISS and the environment




SWISS and the environment


                                SWISS is committed to caring for the environ-          SWISS: fewer emissions in 2004                        But the substantially larger 27 % reduction in fuel              Zurich–Los Angeles:
                                ment. And fuel consumption is the key factor in        It took an average of around four litres of kero-     consumption year-on-year was due to various                      less CO2 and less noise
                                an airline’s environmental performance. With           sene to transport a SWISS passenger 100 kilo-         operational enhancements and to the replace-
                                total consumption of around a million tonnes of        metres (This calculation is based on average          ment of the Boeing MD-11 fleet by more fuel-effi-                12:09: Airbus A340 HB-JMA is pushed back from Zurich Airport’s Pier E. Flight LX 40 is bound for
                                kerosene in 2004, even apparently minor im-            overall load factor levels). SWISS consumed           cient Airbus A340s. A fuel economy programme                            Los Angeles, USA. The cockpit crew work through the checklists. And Captain Müller starts up
                                provements here can translate into substantial         some 470 000 tonnes or 27 % less fuel in 2004         which was implemented with great success by                             the four engines.
                                ecological progress. SWISS lives up to its environ-    than it had the previous year. The reduction is       the company’s pilot corps also made a sizeable
                                mental responsibility by investing constantly in       primarily due to the consolidation of the timetable   contribution to the fuel savings achieved.                       12:14: The aircraft is cleared to taxi to Runway 16. The aircraft makes its way to its departure runway
                                renewing its aircraft fleet. It is a policy that de-   and the downsizing of the aircraft fleet for the                                                                              using 10 % thrust. Nine minutes later, it reaches the runway holding point. As number three in the
                                livers benefits in both ecological and economic        2003/04 winter schedules: total production for        The decline in fuel consumption led to a corre-                         line of departing aircraft, it will have to wait a few more minutes before it is cleared to take off.
                                terms.                                                 2004 in available tonne-kilometre terms was           sponding reduction in pollutant emissions for the
                                                                                       around 22 % below its prior-year equivalent.          year. The charts on page 44 show the yearly emis-                12:33: Two minutes exactly before scheduled departure, LX 40 is cleared for takeoff by Zurich Tower.
                                                                                                                                             sion trends for carbon dioxide (CO2), the most                          The four CFM-56 engines have consumed some 500 litres of kerosene since they were started.
                                                                                                                                             important greenhouse gas, and for nitrogen oxide                        Captain Müller pushes the throttle forward and releases the brakes. The aircraft slowly picks up
                                SWISS CO2 and NOX emission trends1                                                                           (NOX). The key figure here is that of emissions per                     speed. After 25 seconds and at a speed of 300 km/h, the nosewheel of the fully-laden Airbus lifts
                                                                                                                                             revenue tonne-kilometre (RTK). And the decline                          up. A few seconds later the aircraft flies over Zurich Airport’s Opfikon noise measuring point.
                                Fleetwide CO2 emissions (in million tonnes)            Fleetwide NOX emissions (in thousand tonnes)          in these values is a clear indication that SWISS                        The A340 flies a little lower over this point than its predecessor, the MD-11; but the microphone
                                                                                                                                             continues to consistently improve its ecological                        still measures a noise maximum of just 95 dB, around 1 dB quieter than the MD-11.
                                                              4.14
                                                                                                                                             performance.
                                                                                                                    19.3                                                                                      12:35: Around 90 seconds later, Captain Müller pulls back on the throttle. The aircraft has reached an
                                4                                         3.27         20                                                    Noise, climb performance and                                            altitude of 900 metres, and is now leaving the landing and takeoff or LTO zone (covering the
                                                                                                                                15.2
                                                                                                                                             perceived noise                                                         aircraft’s arrival and departure movements below 900 metres and its taxiing on the ground). It is
                                3                                                      15                                                    All aircraft are provided with the engine power to                      in this zone that an aircraft’s emissions have a direct impact on the airport area, since they are
                                                                                                                                             ensure that they can safely take off and climb                          largely unaffected by airflow movements. The A340 is easier on the environment here: with its
                                2                 000                                  10                000                                 even in the event of one engine failing. In the case                    technologically advanced engines it has a substantially lower fuel consumption and produces
                                                                                                                                             of a twin-engined aircraft, this means that each                        almost 30 % fewer nitrogen oxide (NOX) emissions than the MD-11.
                                1                                                      5                                                     engine must be able to provide on its own the
                                                                                                                                             takeoff and climb performance required. Which                    15:00: Local L.A. time. Around 12 hours later, the residents around Los Angeles Airport also benefit from
                                0                 2002        2003        2004         0                2002        2003        2004         means that twin-engined aircraft have twice the                         the quieter A340. On approach (based on data for Zurich), the A340 generates maximum noise
                                                                                                                                             power they actually need in order to take off.                          of some 72 dB, four decibels less than the MD-11. The new Airbus A340 also has impressive fuel
                                                                                                                                             With a four-engined aircraft, this “power reserve”                      consumption credentials. On its 12-hour flight from Zurich to Los Angeles, the Airbus has con-
                                                                                                                                             is far smaller: the aircraft has only 33 % more                         sumed some 10 tonnes less kerosene than the older MD-11. That means around 32 tonnes less
                                CO2 per ATK2 (in grams)                                CO2 per RTK3 (in grams)                               power than it needs, to cover the eventuality of                        CO2 and 146 kilos less NOX for this one single flight. And that is a sizeable contribution to environ-
                                                                                                                                             losing one of its four engines.                                         mental care.
                                                                                                        1 200                                By the same principle, the four-engined Airbus
                                                  725         700                                                   1 106
                                800                                        676         1 200                                    1 012        A340 will climb less steeply after takeoff than a
                                                                                                                                             three-engined MD-11. Despite this, however, the
                                600                                                    900                                                   peak noise level measured on the ground is no
                                                                                                                                             higher than for the trijet. Because the A340 is
                                400                                                    600                                                   flying a little lower, it appears to be bigger. This
                                                                                                                                             may lead – subjectively – to perceiving it to be
                                200                                                    300                                                   louder. While the advanced engines with which
                                                                                                                                             SWISS’s A340s are equipped are primarily intend-
                                0                 2002        2003        2004         0                2002        2003        2004         ed to be more fuel-efficient, they are quieter,
                                                                                                                                             too, as has been confirmed in recordings made by
                                                                                                                                             Unique (the operator of Zurich Airport) and the
                                                                                                                                             Swiss Federal Laboratories for Materials Testing
                                NOX per ATK (in grams)                                 NOX per RTK (in grams)                                and Research (EMPA).

                                                  3.30        3.27        3.16                          5.50
                                                                                                                    5.17
                                                                                                                                4.73         1 In view of the different measurement periods (SWISS did

                                3                                                      5                                                      not start operations in 2002 until March 31), the absolute
                                                                                                                                              figures for 2002 are not comparable with those of subse-
                                                                                       4                                                      quent years.
                                2                                                                                                            2 ATK: available tonne-kilometre, i.e. the fuel needed/pollut-
                                                                                       3
                                                                                                                                                   ants emitted to carry one tonne of capacity (passen-
                                                                                       2                                                           gers, baggage, mail, cargo) one kilometre.
                                1
                                                                                       1                                                     3 RTK: revenue tonne-kilometre, i.e. the fuel needed/pollut-

                                                                                                                                                   ants emitted to carry one tonne of traffic (passengers,
                                0                 2002        2003        2004         0                2002        2003        2004               baggage, mail, cargo) one kilometre.



44                                                                                                                                                                                                                                                                                                                      45
Swiss International Air Lines                         Environmental and political affairs                 Swiss International Air Lines                                   Environmental and political affairs
Annual Report 2004                                    SWISS and the environment                           Annual Report 2004                                              SWISS and the environment




The Airbus A340: an ecological investment             Zurich–Los Angeles:                                 An advanced aircraft fleet                                      Worthwhile investments in comfort and the environment
The renewal of the SWISS long-haul fleet was          pollutant emissions, A340 vs. MD-11                 With the technological innovations they incorpo-
completed on June 26, 2004 with the acceptance                                                            rate, new aircraft are generally easier on the en-              An interview by Christoph Füllemann, Environmental Affairs Officer at SWISS,
of the last aircraft of the present Airbus A340-300   CO2 (in tonnes)                                     vironment in performance terms. And SWISS has                   with Helmut Himmelreich, Head of SWISS Technical Services.
order. The advanced A340s have replaced                                                                   one of the most advanced fleets of any airline in
SWISS’s previous Boeing MD-11s. With its sub-                                                             the world. The oldest type operated, the Boeing                 Füllemann: Mr. Himmelreich, SWISS is spending CHF 12 million putting new seats into eleven Airbus
stantially lower fuel consumption, the A340 pro-                                     284                  MD-83, was withdrawn in 2003. And the same                      A320s. That’s a lot of money at a difficult time. What’s it all about?
duces far fewer CO2 and NOX emissions.                300                                          252    action was taken in 2004 with the departure of
                                                                                                          the MD-11. The average age of the 80 aircraft in                Himmelreich: These aircraft aren’t just getting new and more comfortable seats; they’re getting
                                                                                                          the SWISS fleet at the end of 2004 was 6.0 years                lighter seats, too. And that will translate into sizeable fuel savings. Being thinner, the new seats also
                                                      200                                                 (compared to 5.6 years at the end of 2003).                     allow us to add three more seat rows, which will raise these aircraft’s capacity by 18 seats each.

                                                      100                                                 The average age of the SWISS aircraft fleet is sub-             F: Does that mean passengers will be sitting closer together?
                                                                                            –11%          stantially below the international average, which
                                                                                                          the International Air Transport Association (IATA)              H: Not at all. In fact, with the way the new seats are manufactured, they’ll have more legroom than before.
                                                      0                           MD-11            A340   gives as 10.8 years. The average fleet age among
                                                                                                          Europe’s air carriers is around nine years.                     F: How can you add more seats and end up with a plane that weighs less?

                                                                                                          The SWISS commercial fleet1:                                    H: Using fibre composite technology, our manufacturers can now make our seats thinner and lighter
                                                      NOX in LTO (in kilos)                               Age as of December 31, 2004                                     and make them more comfortable, too. This allows us to save about 900 kilos per aircraft while still
                                                                                     34                                                                                   adding 18 seats.
                                                                                                          Type                         Number Average age
                                                                                                                                                                          F: On an aircraft with an empty weight of some 42 tonnes, that’s a substantial weight saving of
                                                      45                                           47     Airbus A340                   9             1.1                 2.1 per cent.
                                                                                                          Airbus A330                   9             5.3
                                                                                                          Airbus A320 family           25             7.0                 H: Absolutely. In aircraft manufacturing, every kilo counts. Over a year, our Airbus A320 fleet will be
                                                      30                                                  Avro RJ-100                  15             8.0                 carrying some 18.7 million fewer tonne-kilometres of weight around the world. And lowering an aircraft’s
                                                                                                          Avro RJ-85                    4            11.6                 empty weight will almost always make business sense.
                                                      15                                                  Embraer RJ-145               11             3.1
                                                                                           –27 %          Saab 2000                     7             6.7                 F: So the new seats offer benefits for our passengers, for our company and for the environment?

                                                      0                           MD-11            A340   Total                        80              6.0                H: Yes – there are ecological, economic and customer benefits here. The extra seats should generate
                                                                                                                                                                          higher earnings; and we expect the lower weight to save us some 1 200 tonnes of kerosene a year
                                                                                                          1 The term “commercial fleet” refers to all aircraft operated
                                                                                                                                                                          throughout our Airbus A320 fleet. And all with extra comfort, too.
                                                                                                           by SWISS in scheduled or charter service. All data are as of
                                                                                                           December 31, 2004. Two further Saab 2000 aircraft were
                                                      NOX whole flight (in tonnes)                         operated by SWISS subsidiary Europe Continental Airways        F: That’s good news for the environment. Because that means 3 700 tonnes less carbon dioxide and
                                                                                                           S.A. (Crossair Europe).                                        15.5 tonnes fewer nitrogen oxide emissions a year.
                                                                                   1.35
                                                                                                   1.16
                                                      1.2


                                                      0.8


                                                      0.4
                                                                                           –14 %

                                                      0                           MD-11            A340




46                                                                                                                                                                                                                                                                                    47
Swiss International Air Lines   Environmental and political affairs                                                                           Swiss International Air Lines                          Environmental and political affairs
Annual Report 2004              Aeropolitical affairs                                                                                         Annual Report 2004                                     Aeropolitical affairs




Aeropolitical affairs


                                Switzerland’s national and international air trans-     Impact of the German overflight                       Exceptions to these approach and departure re-         One of the arguments put forward by the propo-          SWISS in favour of Schengen/Dublin
                                port policy lays down the guidelines for the            restrictions on SWISS’s flight operations             strictions can only be made for specific reasons,      nents of stricter operating restrictions for Zurich
                                development of the country’s major airports. For        at Zurich Airport                                     such as cases in which the prevailing weather          is that, with the elimination of what they regard       SWISS supports the conclusion of the
                                SWISS, these aeropolitical parameters are of the        The restrictions on the use of German airspace        conditions or other clearly-specified eventualities    as “unnecessary” connecting passengers, the             Schengen/Dublin Agreement, primarily because
                                utmost importance in terms of their impact on           for approaches to Zurich Airport which were           such as the failure of a navigation facility make it   ceiling of 250 000 movements a year would be
                                the airport policy applicable to the interconti-        introduced in October 2002 continue to have a         impossible to approach the airport without using       more than sufficient to meet local Swiss air trans-     – by abolishing systematic personal border
                                nental hub at Zurich. The creation and mainte-          sizeable adverse impact on the airport’s flight       German airspace.                                       port needs. The claim is based, however, on a             controls between Switzerland and the
                                nance of an operating environment at Zurich             operations.                                                                                                  fundamental misunderstanding of the mecha-                Schengen/Dublin EU countries, it will facilitate
                                which is in line with the development of the air                                                              In the absence of such exceptional conditions          nisms of international air transport. It also over-       the free movement of persons between these
                                transport market are essential to SWISS’s               As a result of numerous ordinances imposed            (i.e. when the German ordinances apply to their        looks the developments of the last few years.             states, eliminating the time-consuming airport
                                business success.                                       unilaterally by the German Federal Ministry of        full extent), the capacity reductions lead to a                                                                  immigration controls for air travel between
                                                                                        Transport, Building and Housing, the number           situation in which the approaches to Zurich sched-     Firstly, hardly any airline could operate its direct      Switzerland and the EU and shortening journey
                                On December 13, 2004, following comprehensive           of arrivals and departures at Zurich Airport is       uled for the first “arrival bank” early in the         intercontinental services profitably without              times.
                                consultations, the Swiss Federal Council pub-           severely limited between 21:00 and 07:00 on           morning exceed the airport’s restricted capacity –     taking advantage of connecting traffic to and
                                lished its Report on Swiss Aviation Policy, a docu-     weekdays and between 20:00 and 09:00 at week-         especially at weekends and on German public            from other flights. Secondly, despite the sizeable      – Schengen single-entry visas will no longer expire
                                ment that will serve as a blueprint for SWISS’s         ends and on public holidays. The ban on the           holidays. This in turn causes an accumulation          decline in traffic volumes over the past few              when the visa holder travels to another Schengen
                                medium- and long-term role and success. SWISS           use of German airspace below Flight Level 120         of delays whose knock-on effects will often con-       years, Zurich already has far more than the               country via Switzerland. Up to now, such journeys
                                extensively supports the objectives outlined in         (12 000 feet) during these times greatly reduces      tinue to be felt until as late as 11:30.               250 000 movements a year which are now being              with an intermediate stop in Switzerland have
                                the report.                                             the airport’s operating capacity.                                                                            demanded. And any further restriction on the              been regarded as leaving the Schengen zone. As
                                                                                                                                              All in all, over half a million SWISS passengers       airport’s operations would have a profoundly              such, they have required an appropriate visa, and
                                                                                                                                              were affected by delays caused by the restrictions     detrimental effect on SWISS and ultimately on             this has put Swiss airlines at a substantial disad-
                                The Swiss Federal Council’s Report on Swiss Aviation Policy                                                   on the use of German airspace in 2004. And             Switzerland’s attractiveness as a business                vantage in competition terms.
                                                                                                                                              SWISS is estimated to have incurred additional         location.
                                The following key statements in the report are especially welcome:                                            costs of some CHF 8 million as a direct result of                                                              – SWISS flights between Switzerland and the EU
                                                                                                                                              these delays.                                          The hub function: a key locational advantage              will not be subject to the requirement to com-
                                – an express acknowledgement of the special importance of air transport to the Swiss economy, as an                                                                  The Swiss Federal Council’s Report on Swiss               municate passenger data to the EU authorities
                                  element in both the country’s foreign trade policy and its tourist sector, and as a key component in its    Political demands for further operating                Aviation Policy underlines the vital importance of        before departure as soon as the corresponding
                                  appeal as a business and residential location;                                                              restrictions at Zurich Airport                         airport infrastructures and the possibilities they        EU directive on the obligation of carriers to com-
                                                                                                                                              Since the German authorities unilaterally imposed      offer to adapt to demand and general economic             municate passenger data for flights from third-
                                – the corresponding acknowledgement of the importance of direct European and intercontinental air             their restrictions on the use of German airspace,      growth. The hub function of Zurich Airport and            party countries to the EU is implemented.
                                  services to Switzerland’s appeal as a business location, and the associated value of a hub at Zurich        the public discussion on the importance and            the direct long-haul air services it provides are
                                  Airport as an efficient means of ensuring and enhancing the country’s air transport links with the world;   operation of SWISS’s Zurich home-base airport          also cited in the report – and in numerous other
                                                                                                                                              has tended to focus heavily on noise consid-           studies – as key factors in Switzerland’s appeal as
                                – the federal government’s commitment to SWISS as a key means of providing the effective international        erations and the distribution of noise pollution       a business location and in the country’s foreign
                                  air connections required for Switzerland under its national air transport policy;                           among local communities.                               trading activities.

                                – the appreciation of the need to create internationally competitive overall operating parameters for         A petition on the development of Zurich Airport        Whether Zurich Airport can remain part of a glob-
                                  Swiss air transport activities;                                                                             submitted for cantonal referendum in mid-2004          al air transport network will depend primarily on
                                                                                                                                              even demanded a radical restriction of the air-        market conditions. The effect of such market
                                – the recognition of the need to create a competitive operating environment and maintain an efficient,        port’s operation to just 250 000 movements a           conditions can be thwarted all too easily, however,
                                  high-quality and safe airside and landside infrastructure for Swiss air transport activities;               year, along with an extension of the present night     by subjecting flight operations to restrictive regu-
                                                                                                                                              operating curfew from the 5.5 hours currently in       lations. But it can also be positively influenced, by
                                – the government’s willingness to consider assuming certain costs arising from the security precautions       force and the seven hours already planned to nine      providing the airport and the local network carrier
                                  and the air navigation services required and, if deemed appropriate, to use funds deriving from the         hours. This would place further massive restric-       with the scope required to ensure their reason-
                                  current fuel tax on domestic air transport for this purpose;                                                tions on the airport’s present operations, espe-       able further development in response to the same
                                                                                                                                              cially in the morning and evening hours, which are     market needs.
                                – the commitment to the demand-driven development of the country’s major airports, from which                 so vital in timetable terms. It would also effec-
                                  exceptions may be made for sustainability reasons, but for which any restrictions should be based           tively end any further development of the airport.
                                  not on movement ceilings but specially-legislated building lines or noise zones, operating hours            And SWISS, as Zurich’s home carrier, would be
                                  regulations and approach and departure procedures;                                                          the most affected.

                                – the proviso that any action taken to reduce noise levels at and around Zurich Airport must be
                                  economically viable, especially in terms of the imposition of operating restrictions, which must be
                                  reasonable when compared to those enforced at competing airports abroad;

                                – the pursuit of a policy of international collaboration in which – among other things – Switzerland
                                  should be as actively and purposefully involved as possible in European air transport policy;

                                – the goal of ensuring Switzerland’s active involvement in the European Aviation Safety Agency (EASA)
                                  and the endeavours to create a “Single European Sky” for the continent’s air navigation services.



48                                                                                                                                                                                                                                                                                                             49
Swiss International Air Lines                          Environmental and political affairs
Annual Report 2004                                     Aeropolitical affairs




An implementation of the extreme demand for a          If, following the abandonment of long-haul ser-
nine-hour night operating curfew would irrepa-         vices, Zurich Airport were relegated to the role of
rably weaken Zurich’s position. Such an arrange-       providing feeder flights to and from other Euro-
ment would limit the airport’s operating hours to      pean hubs, a large part of the added value asso-
between 07:00 and 22:00. In view of the time dif-      ciated with such intercontinental flight operations
ferences between the various continents, many          would also be shifted abroad. Foreign carriers
long-haul services, such as those from the Far         would largely deploy short-haul aircraft to feed
East, arrive at European airports in the early morn-   customers from the Zurich region to their own
ing hours. A flight from Asia which has to be          long-haul hubs, and would bring them back
scheduled to land in Zurich after 07:00 will not       to Switzerland via the same hub connections.
only depart from the Far East at an unappealingly
late local hour; it will also offer far fewer conve-   But feeder flights generate noise, too. So the
nient onward connections on arrival. In short,         noise would remain while the economic benefits
such restrictions would make it impossible to          offered by direct intercontinental services would
operate Zurich as an efficient intercontinental        be lost. Nor is this “merely” an issue of a few
hub. A nine-hour night operating curfew would          thousand jobs at SWISS and Zurich Airport: such
also reduce SWISS’s average utilisation of its air-    a transformation of the role of Zurich Airport
craft fleet by almost one-third, because numerous      would also affect countless direct or indirect sup-
present rotations could no longer be operated,         pliers, from small and medium-sized enterprises
and the aircraft would spend more time on the          to larger corporations.
ground. No other European airline is subject
to such draconian limitations in the operating         What is at stake, then, in the fight for competitive
hours at its home-base airport.                        operating parameters for Switzerland’s major
                                                       airports, is the retention of the transport infra-
Without the international hub operated by SWISS        structure that is essential to Switzerland’s appeal
at Zurich, it could not be ensured that Switzerland    as a business location. Other key business centres
would remain directly linked to the world’s key        in Europe and beyond are continually enhancing
centres and regions outside Europe. It is a fallacy    their transport facilities and links, because they
to believe that, should the home carrier largely       have recognised the vital importance of good
abandon them, these direct intercontinental            accessibility to their locational appeal. Yet in
routes would inevitably be taken over by its foreign   Switzerland – which has always been so depen-
competitors. The reality is quite different: most      dent on foreign trade – it is extremely important
of the intercontinental destinations that were         to ensure that such accessibility is secured and
served directly from Switzerland before SWISS’s        continues to be developed in line with general
restructuring – such as Beijing, Delhi, Tehran,        demand.
Rio de Janeiro and Buenos Aires – have not seen
such direct service restored by another carrier.




                                                                                                              Paul Estoppey
                                                                                                              General Manager Cabin Interior Development
                                                                                                              photographed on an Airbus A320 with
50                                                                                                            the new cabin seats
Swiss International Air Lines   The fascination of flying   Swiss International Air Lines   The fascination of flying
Annual Report 2004                                          Annual Report 2004




                                The fascination
                                                            Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                                  and the CEO                           7



                                                                                            Products and services                 SWISS: tailored to your needs       12


                                of flying                                                   The 2004 business year
                                                                                                                                  Swiss WorldCargo



                                                                                                                                  Substantial progress towards
                                                                                                                                                                      15




                                                                                                                                  a competitive company               22
                                                                                                                                  2004 financial results              24
                                                                                                                                  SWISS at a glance                   26



                                                                                            Facts and figures                     Traffic results for 2004            34
                                                                                                                                  The route network                   36
                                                                                                                                  The aircraft fleet                  38



                                                                                            Environmental and political affairs   SWISS and the environment           44
                                                                                                                                  Aeropolitical affairs               48



                                                                                            The fascination of flying             SWISS, a network carrier            54
                                                                                                                                  The Operations Control Center       56



                                                                                            Corporate governance                                                      62




                                                            Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                                  Consolidated balance sheet          77
                                                                                                                                  Consolidated statement of
                                                                                                                                  changes in shareholders’ equity     78
                                                                                                                                  Consolidated cash flow statement    79
                                                                                                                                  Notes to the consolidated
                                                                                                                                  financial statements                 80
                                                                                                                                  Report of the Group Auditors        126
                                                                                                                                  Five-year review                    127



                                                                                            Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                                  Balance sheet                       131
                                                                                                                                  Notes to the financial statements   132
                                                                                                                                  Report of the Statutory Auditors    141



                                                                                            Contacts                                                                  144
Swiss International Air Lines   The fascination of flying                                                                                         Swiss International Air Lines                           The fascination of flying
Annual Report 2004              SWISS, a network carrier                                                                                          Annual Report 2004                                      SWISS, a network carrier




SWISS, a network carrier


                                As a network carrier, SWISS operates almost              How are timetables made?                                 First and foremost, the new timetable will have         Slot coordination:                                       The actual slot conference is like a vast trading
                                90 per cent of its flights to or from its Zurich Air-    The airline business divides the year into a winter      to meet SWISS’s needs and objectives. But, wher-        the global planning dimension                            market, at which possible alternatives will be
                                port hub. “As its name suggests, a hub is like the       timetable period (which runs from the end of             ever this is feasible, it will also be aligned to the   Defining the timetable desired is one thing. But,        discussed and considered bilaterally between the
                                centre of a wheel,” explains SWISS’s Chief Net-          October to the end of March) and a summer                timetables of SWISS’s airline partners. Due re-         since the 1960s, many of the world’s major air-          airlines and the coordinators present.
                                work Officer Harry Hohmeister. “And the various          timetable period (which extends from the end of          gard must also be paid to the needs of suppliers        ports have had insufficient capacity during peak
                                routes that radiate from it form the wheel’s             March to the end of October). Major modifica-            and, of course, to all legal requirements (such         hours to meet all the requests of the airlines that      So the airline representatives will leave the con-
                                spokes.”                                                 tions to schedules are generally only made at the        as those specified by the Federal Office for Civil      serve them. The capacity bottlenecks concerned           ference with finalised and functioning timetables
                                                                                         start of a new timetable period. But what kind           Aviation, Switzerland’s aviation authority).            may be caused by runway system limitations,              which represent the best possible compromise
                                By coordinating the arrivals and departures of the       of planning process is generally involved here?                                                                  by a shortage of aircraft stands or by a lack of         between the preferred and the practicable. In a
                                services on those “spokes”, SWISS can provide                                                                     The whole planning process is supported by              passenger check-in or baggage handling capac-            next step, this finalised timetable will then be
                                a wide range of attractive air connections at its        A never-ending job                                       SWISS’s Scheduling unit, which assesses the             ity. Whatever the cause, these constraints mean          published worldwide.
                                Zurich hub. This in turn will enhance the appeal         Optimising and further developing a timetable –          feasibility of alternative schedule scenarios in        that a compromise will need to be found.
                                of its overall schedules, creating convenient con-       and the route network on which it is based – is          terms of various operating parameters such as                                                                    Timetable publication
                                nections between places without direct SWISS             essentially a never-ending occupation. The world         flying times and ground times. Various further          Airports which suffer from capacity problems are         The publication of the timetable is essentially a
                                services.                                                is changing all the time, and trade routes and           regulations must also be observed. Time must be         known as “coordinated airports”, and currently           rolling process. At any chosen date, all the time-
                                                                                         passenger flows shift accordingly: some coun-            allowed, for instance, for the maintenance visits       number some 150 around the world. Zurich and             table data for the present timetable period and
                                SWISS bundles its services to and from Zurich            tries flourish while others slip into recession;         prescribed by the aircraft’s manufacturers.             Geneva are among them.                                   the months thereafter – for a total period of
                                throughout the day into a series of arrival and          some tourist destinations experience a boom in           The flight duty regulations (FDRs) applicable to                                                                 342 days ahead – are published in the airline’s
                                departure “banks”. In other words, a period which        popularity while others fall out of favour. Exten-       cockpit and cabin crews under their Collective          To keep the delays which could result from such          reservation system.
                                consists mainly of arrivals will be followed by a        sive migrations from one country to another can          Labour Agreements must also be respected. The           operating restrictions at acceptable levels, the
                                period consisting largely of departures. SWISS           also, within just a few years, produce a sizeable        FDRs specify, among other things, the maximum           capacity available at these coordinated airports         Once the IATA Slot Conference has been held, the
                                currently operates a seven-bank service pattern          émigré community and a corresponding demand              working hours permitted, and also regulate night-       is divided up among the airlines desiring it, by         airline will update its timetable and publicise any
                                at its home Zurich hub.                                  for new air services.                                    work, minimum rest times and more.                      assigning specific landing and takeoff times or          changes required all over the world via its various
                                                                                                                                                                                                          “slots”. Each slot is issued for a landing or a          distribution channels. In addition to the conven-
                                To take an example from the 2004/05 winter               Any airline wishing to respond appropriately to          After a careful appraisal of all the various options,   departure on a specific day of the week. So a            tional reservation systems used by travel agen-
                                schedules: some 14 SWISS flights are timetabled          such changes will need to conduct thorough               the preferred new timetable will be finalised and       daily service to a coordinated airport will require      cies, these include the online booking engines at
                                to land in Zurich every morning between 06:10            and extensive analyses, which can then serve as          approved by the Management Board. In view               14 slots – seven for landings and seven for              www.swiss.com and, of course, the printed
                                and 06:50, bringing passengers and cargo from            a basis for the planning process required.               of their economic ramifications, major changes –        departures.                                              timetable booklet.
                                Hong Kong, Bangkok, Mumbai, Stuttgart, Geneva                                                                     such as the service entry of an additional
                                and other points in Europe and beyond. Some of           The analytical phase                                     long-haul aircraft or the withdrawal of an aircraft     The slot conference                                      By the time the first copies of the printed SWISS
                                these travellers and goods will have Zurich as their     In the analytical phase, the focus is on studying        from the operating fleet – will be referred for         Twice a year, around five months before the start        timetable for the 2005 summer period were being
                                final air destination. Others will connect (or, in       current business trends. Which markets are de-           decision to the Board of Directors. “A single           of each new timetable period, the International          distributed in mid-March, specialists in various
                                the case of cargo, be reloaded) onto connecting          veloping better than expected? Where are reve-           Airbus A340 will generate annual revenues of            Air Transport Association organises its IATA Slot        units throughout the company had long started
                                flights. The first departure wave begins at              nues falling short of expectations? Why is the           some CHF 100 million, as much as a medium-              Conference. Each of the world’s coordinated              their work on the 2005/06 winter timetable,
                                07:00 with a SWISS flight to Copenhagen. Five            traffic being generated on a particular route be-        sized factory,” Hohmeister points out. “So              airports appoints its own coordinator. And each          with the overall aim of providing customers with
                                minutes later, services for London, Manchester           low budgeted projections? Where might further            dozens of jobs will depend on its operation.”           airline submits its slot “wish list” to these coordi-    further schedule enhancements.
                                and Stuttgart depart, carrying passengers from           market potential lie untapped, and how could this                                                                nators about a month before the conference
                                Switzerland and others continuing their air jour-        best be identified and exploited?                        The operational planning process will culminate         begins.                                                  Consistently developing and refining Zurich Air-
                                ney from all over the world. All in all, SWISS flights                                                            in the development by the Scheduling unit of a                                                                   port as an efficient hub system, in close collabora-
                                to some 24 destinations will leave Zurich between        All the various issues are addressed using internal      finalised rotation plan. This is a kind of weekly       The slot coordinator will then assign the slots          tion with the airport authorities, is a key SWISS
                                07:00 and 07:50. Just 25 minutes later, at 08:15,        revenue analyses and databases containing de-            deployment roster for the aircraft fleet, and will      available, paying due regard to historical pre-          concern. So SWISS will continue to expand its
                                SWISS’s transatlantic service from New York JFK          tails of global traffic flows. A keen eye is also kept   serve as a basis for the next step: requesting the      cedent: each airline basically has the right             timetable to and from Zurich in accordance with
                                is scheduled to touch down, heralding the start of       on airline competitors, while customer input is          requisite landing and takeoff slots at the various      to retain any slot which it held in the same time-       market needs, to ensure that it continues to offer
                                the second arrival bank.                                 carefully assessed and local market studies are          airports served.                                        table period of the previous year. Certain condi-        its passengers an attractive and comprehensive
                                                                                         conducted if and when required.                                                                                  tions must be met, however, for these “grand-            range of air services and connections.
                                “By bundling flights together like this, a medium-                                                                                                                        father rights” to apply. The slot must have been
                                sized carrier like SWISS can also offer a wide           The draft timetable and rotation planning                                                                        regularly used (i.e. at least 80 % of the time). If it
                                range of connections,” Hohmeister explains.              The airline’s network planners then take the                                                                     has not, the airline runs the risk of losing it to a
                                “This improves the load factors on our aircraft;         results of these analyses and, using the timetable                                                               competitor. In cases in which the demand for
                                and this in turn enhances the profitability of our       for the same period the previous year, draw up a                                                                 slots exceeds the slots available, the coordinators
                                flights. By adding connecting passengers to              first draft of the new timetable.                                                                                will allocate the slots at their disposal in accor-
                                a service, we can also provide viable operations                                                                                                                          dance with precise global guidelines established
                                to destinations for which there would be too             Sophisticated computer-based simulation                                                                          by IATA.
                                little demand to and from Switzerland alone. So          models can now be used to evaluate various
                                a Zurich hub and SWISS are key elements in               timetable scenarios. Raising frequencies, varying
                                Zurich’s and Switzerland’s appeal as business            aircraft size, shifting departure times, breaking
                                and residential locations.”                              existing connections or creating new ones: the
                                                                                         timetable can be adjusted in any of a number of
                                                                                         ways and the projected results analysed in detail.




54                                                                                                                                                                                                                                                                                                                  55
Swiss International Air Lines   The fascination of flying                                                                                       Swiss International Air Lines                          The fascination of flying
Annual Report 2004              The Operations Control Center                                                                                   Annual Report 2004                                     The Operations Control Center




The Operations Control Center


                                “Looking after 80 aircraft, 400 flights, 500 pilots,    Operations Control is where all the threads come        Zurich, 06:30 UTC (07:30 local time)                   Something else will need to be organised, too: a
                                1 500 flight attendants and 25 000 passengers a         together. The people here always know the               Flight LX 771, scheduled to land at 08:45, will be     new slot2 for the landing in Zurich. Every flight
                                day is quite a challenge,” says Manfred Brenn-          precise current location of every SWISS aircraft.       delayed by about an hour because of snow in            has a firmly-assigned landing slot, which corre-
                                wald, Chief Operations Officer and thus in overall      “If a flight is affected by a delay, we have to re-     Brussels. The Airbus A319 is carrying 92 passen-       sponds to its scheduled time of arrival. But if a
                                charge of SWISS’s operational business units.           spond immediately and analyse the effect this is        gers. With a few mouse clicks, Andreas Wolf finds      delay means that a flight will be landing at a dif-
                                “But our Operations Control Center people are all       likely to have on our schedules as a whole,” Wolf       out that they include ten customers who are            ferent time to its original slot, a new slot must be
                                professionals, and they’re well able to deal with       explains. As he does so, he points to the three         transferring in Zurich onto other flights – six of     requested. At SWISS, Flight Dispatch is respon-
                                even the most complex situations.”                      screens in front of him, which, in an array of lines,   them with what are now tight connections. Two          sible for doing so. “Even if the delayed landing is
                                                                                        coloured bars, shaded areas, figures and more           passengers are booked on flight LX 562 for Nice,       in Zurich, we still need to agree a new landing slot
                                SWISS’s Operations Control Center consists of           that are baffling to the casual observer, provide all   which is scheduled to depart at 10:05. “A con-         with the European slot coordinators in Brussels,”
                                four departments – Operations Control, Crew             the requisite information on every SWISS flight.        necting time of 20 minutes is too tight,” Wolf ex-     explains duty dispatcher René Oberholzer.
                                Control, Flight Dispatch and the Passenger Care         The screens immediately reveal if a delay to one        plains. “In cases like this, I contact Swissport,
                                Center – that all work closely together. Its staff      service will affect the subsequent flights planned,     our ground handlers. We’ll put the departure of        Zurich, 07:30 UTC (08:30 local time)
                                of just under 90 employees are all dedicated to         and whether a replacement aircraft needs to be          LX 562 back ten minutes,” he decides.                  Flight Dispatch is busy talking to the two pilots
                                ensuring that SWISS flights are operated safely         found. “If we don’t react in good time and don’t                                                               for flight LX 16 from Zurich to New York JFK. The
                                and punctually. In doing so, they must always           look far enough ahead,” Wolf adds, “we run the          The family of four who are booked to connect           planning of a long-haul flight can take several
                                make sure that the numbers of crew members              risk of a real domino effect that can cause more        onto LX 16 to New York JFK, scheduled to leave at      hours, since various factors such as the weather,
                                required for each flight are available on time.         and more complications as time goes on.”                10:00, pose more of a problem. This departure          winds, available alternate airports, routings and
                                And, in the event of a timetable irregularity, the                                                              would have to be delayed more than 30 minutes if       aircraft weight (including the passenger and
                                Passenger Care Center will see to it that the           The timetable may provide a firm framework for          the family are to make their connection. But doing     cargo payload) must all be taken into account.
                                passengers affected on the ground are provided          SWISS’s flight operations, but every day is differ-     so would have undesirable consequences for             For Marco Müller, a captain on the long-haul
                                with SWISS assistance and support.                      ent in the Operations Control Center. Three of          other passengers, who would then miss their            Airbus A330 and A340, the collaboration with
                                                                                        the four departments operate round the clock in         own onward connections in New York. The best           Flight Dispatch is a vital one: “The decision-mak-
                                “We could never do the job as well as we do if we       shifts, all to ensure that SWISS’s flight operations    solution here is to rebook the family onto AA 65/      ing documents that Flight Dispatch provides
                                weren’t constantly coordinating with each other,”       are performed as smoothly and punctually as             LX 3000, a flight operated by SWISS codeshare          allow pilots to prepare the flight as efficiently as
                                says Andreas Wolf of Operations Control, explain-       possible.                                               partner American Airlines which is due to depart       possible and calculate the fuel they’ll need.”
                                ing the vital importance of collaboration between                                                               at 13:00. The rebooking will be arranged by
                                the four departments. “We sit together several          Zurich, 05:00 UTC1 (06:00 Swiss local time)             Swissport, SWISS’s ground handler, who will also       Zurich, 09:00 UTC (10:00 local time)
                                times a day to discuss the current status of our        Shift change in Operations Control. The night shift     inform the passengers concerned.                       As announced, flight LX 771 from Brussels lands
                                flight operations, analyse any possible conse-          manager hands over to Andreas Wolf, manager                                                                    in Zurich one hour behind schedule. But, thanks
                                quences or effects and jointly initiate any action      of the first day shift, briefing him on the most im-    Operations Control also needs to consider the          to the timely planning effected and the close
                                required.”                                              portant events of the previous night. Shortly after     aircraft involved in the delay. After returning from   collaboration among the various departments
                                                                                        06:00 Swiss local time, following a quick look          Brussels, Airbus A319 HB-IPT was due to depart         within the Operations Control Center, the nega-
                                No two days are alike in the Operations Control         at the meteorological charts, Wolf takes part in a      again at 10:00 as LX 2804 to Geneva. It will not       tive effects of the delay on passengers, crew
                                Center. Delays due to snow, congested airways           telephone conference call with Zurich Airport,          be able to do so now. So Operations Control looks      members and flight operations as a whole can be
                                and bird strikes are almost a daily occurrence.         Skyguide, Swissport and other airport partners          into the availability of a replacement aircraft.       kept to a minimum. “The Operations Control
                                And every day the teams involved are tasked with        to gain a full view of the current situation at the                                                            Center is the heart of any airline,” Manfred Brenn-
                                getting the right pilots and the right flight atten-    airport. “Network thinking is crucial to this job,”     Parallel to this, Crew Control is looking into the     wald concludes. “And it’s when our passengers
                                dants onto the right aircraft at the right time. It’s   Wolf stresses, explaining the importance of these       effects of the delay in crewing terms. Flight          don’t notice us – when they get to their destina-
                                a complex undertaking: as well as delays to flight      standard and routine conference calls. “Flight          LX 634 from Zurich to Paris and flight LX 1576         tion without any problems or delays – that we’ve
                                operations, absences due to sickness can play           operations are like the inside of a clock. If one       from Zurich to Vienna will both be affected, as the    really done our job!”
                                havoc with the duty rosters, too.                       small wheel starts to stick, you may end up with        pilots from Brussels were due to operate the Paris
                                                                                        delays, or even cancellations.”                         flight and the maître de cabine was to have con-
                                                                                                                                                tinued his working day on the Vienna service. “In
                                                                                                                                                cases like this, we need to look into several things
                                The Operations Control Center                                                                                   at once,” says Bettina Höner, duty crew controller
                                                                                                                                                for the day. “Will the crew members have enough
                                Operations Control ensures that SWISS‘s flight operations are performed safely, punctually and                  time to transfer, or will we have to find replace-
                                cost-effectively and are focused as clearly as possible on SWISS’s travelling customers.                        ments? Who could we get to replace the pilots,
                                                                                                                                                and who could step in for the maître de cabine?
                                Flight Dispatch ensures that all flights (and long-haul flights in particular) are correctly planned with       If we do this, can we reassign these three crew
                                due regard to meteorological conditions, routings, alternate airports and fuel requirements. It is also         members to other duties? And if they do have
                                responsible for SWISS’s slot administration worldwide.                                                          further duties, will they remain within the maxi-
                                                                                                                                                mum duty times prescribed by law?”                     1 UTC (Universal Time Coordinated).

                                Crew Control ensures that the right crews are on the right aircraft at the right time. While such plans                                                                 The adoption of UTC as the standard industry time ensures
                                                                                                                                                                                                        that all air traffic services units all over the world use the
                                can be affected by absences due to sickness, they are disrupted far more by delays, aircraft changes,                                                                   same time when providing details of flights. Swiss local time
                                technical problems, adverse weather conditions or even strikes.                                                                                                         is one hour ahead of UTC (UTC+1) in winter and two hours
                                                                                                                                                                                                        ahead (UTC+2) in summer.
                                The Passenger Care Center looks after passengers and their needs, ensuring that they are properly                                                                      2 A slot is an assigned time at which an arrival or departure
                                informed in the event of delays, cancellations or rebookings. The Center also provides global support                                                                   must be effected or a specific waypoint must be overflown.
                                for all SWISS customer contact units.                                                                                                                                   Assigning slots is one means of managing traffic flows and
                                                                                                                                                                                                        improving punctuality.

56                                                                                                                                                                                                                                                                       57
Bruno Schlaefli
General Manager Ground Product
photographed at the new Lounge Bar,
the longest in the airline world
Swiss International Air Lines   Corporate governance   Swiss International Air Lines   Corporate governance
Annual Report 2004                                     Annual Report 2004




                                Corporate
                                                       Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                             and the CEO                           7



                                                                                       Products and services                 SWISS: tailored to your needs       12


                                governance                                             The 2004 business year
                                                                                                                             Swiss WorldCargo



                                                                                                                             Substantial progress towards
                                                                                                                                                                 15




                                                                                                                             a competitive company               22
                                                                                                                             2004 financial results              24
                                                                                                                             SWISS at a glance                   26



                                                                                       Facts and figures                     Traffic results for 2004            34
                                                                                                                             The route network                   36
                                                                                                                             The aircraft fleet                  38



                                                                                       Environmental and political affairs   SWISS and the environment           44
                                                                                                                             Aeropolitical affairs               48



                                                                                       The fascination of flying             SWISS, a network carrier            54
                                                                                                                             The Operations Control Center       56



                                                                                       Corporate governance                                                      62




                                                       Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                             Consolidated balance sheet          77
                                                                                                                             Consolidated statement of
                                                                                                                             changes in shareholders’ equity     78
                                                                                                                             Consolidated cash flow statement    79
                                                                                                                             Notes to the consolidated
                                                                                                                             financial statements                 80
                                                                                                                             Report of the Group Auditors        126
                                                                                                                             Five-year review                    127



                                                                                       Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                             Balance sheet                       131
                                                                                                                             Notes to the financial statements   132
                                                                                                                             Report of the Statutory Auditors    141



                                                                                       Contacts                                                                  144
Swiss International Air Lines   Corporate governance                                                                                        Swiss International Air Lines                         Corporate governance
Annual Report 2004                                                                                                                          Annual Report 2004




Corporate governance


                                SWISS is committed to the principles of today’s         1.2 Significant shareholders                        ing that it is majority-controlled by Swiss share-    Nomination Committee since December 6, 2001.           New York. He has been a Member of the Execu-
                                corporate governance, and strives to ensure opti-       A list of the company’s major shareholders on       holders as required by Swiss federal law, or if the   He has also been a Member of its Remuneration          tive Board of Swiss Re since June 2001, heading
                                mum transparency in all its business decisions,         December 31, 2004 is provided on Page 112 of        holder of such shares does not expressly declare,     Committee and its Audit Committee since May            the company’s Financial Services Business
                                policies and activities towards all its stakeholders,   the Financial Report (but see also 10 below,        despite demands to do so by the company,              2003. In addition to his Chairman’s duties, Pieter     Group, and was appointed Deputy CEO of Swiss
                                and in particular towards current and future            “Major subsequent developments between the          that they have acquired and will hold the shares      Bouw also served as acting company CEO from            Re on January 1, 2005.
                                investors in the company.                               balance sheet date and March 30, 2005”).            concerned on their own behalf and in their own        the departure of André Dosé on March 10, 2004
                                                                                                                                            interests.                                            until the assumption of duties by his successor        Walter Bosch
                                The details provided below are in compliance            1.3 Cross-shareholdings                                                                                   Christoph Franz on July 1, 2004. Bouw, a 63-year-      2nd Deputy Chairman and independant
                                with, and in some cases exceed, the requirements        The company has no cross-shareholding               2.6.2 Exceptions in the year under review             old Dutch national, studied business and trans-        Lead Director
                                of the Directive on Information Relating to Corpo-      arrangements.                                       No exceptions were made and no acquirers of           port economics at Amsterdam’s Vrije Universiteit.      Walter Bosch has been a Member of the Board of
                                rate Governance issued by the SWX Swiss                                                                     shares were refused entry in the Share Register       He commenced his career in the air transport           Directors and of its Nomination Committee since
                                Exchange. Unless otherwise specified, all these                                                             in the year under review.                             sector when he joined KLM Royal Dutch Airlines         May 6, 2003. He was named Second Deputy
                                details reflect the company’s corporate gover-                                                                                                                    in 1967. He was appointed Head of Cargo Mar-           Chairman of the Board and independent Lead
                                nance arrangements on the balance sheet date of         2. Capital structure                                2.6.3 Admissibility of nominee registrations          keting in 1976, subsequently served as Regional        Director by the Board of Directors following its
                                December 31, 2004. Significant developments                                                                 The registration of nominees is basically permit-     Manager Europe and Africa, and was appointed           appointment of Chairman Pieter Bouw as acting
                                since this date are stated at the end of this corpo-    2.1 Capital                                         ted. Such registration can, however, be refused if    Executive Vice-President in 1987. He served as         CEO on March 10, 2004. A 60-year-old Swiss
                                rate governance section.                                Details of the company’s ordinary, authorised       the details of the nominee could, to the know-        the company’s Chief Executive Officer from 1991        national and an acknowledged specialist in the
                                                                                        and conditional share capital are provided on       ledge available to it, prevent the company from       to 1997. He is Professor of Business Economics at      communications field, Walter Bosch studied
                                                                                        Pages 112 of the Financial Report.                  proving that it is majority-controlled by Swiss       Twente University in the Netherlands. Key board        economics in St. Gallen and Berlin. He subse-
                                                                                                                                            shareholders as required by Swiss federal law.        mandates held in addition to his Swiss Interna-        quently spent 20 years as a journalist and editor-
                                1. Group structure and shareholders                     2.2 Authorised and conditional capital              The nominee must also undertake to inform the         tional Air Lines mandate comprise OCE N.V. Pieter      in-chief at various Swiss print publications before
                                                                                        in particular                                       company immediately of any cessation of their         Bouw is also Chairman of the Supervisory Board         founding the “Bosch und Butz” advertising agen-
                                1.1 Group structure                                     Precise details of the company’s authorised         nominee status. The Board of Directors is em-         of the Vrije Universiteit in Amsterdam and Chair-      cy in 1987. He sold the agency ten years later, and
                                1.1.1 Operational group structure                       and conditional share capital are provided on       powered to delete any entry in the Share Register     man of the Board of stockmarket-listed CSM N.V.        has since been active as a business entrepreneur
                                The business of the Swiss International Air Lines       Pages 112 of the Financial Report.                  with retroactive effect to the date the entry was                                                            and management consultant. Walter Bosch is Del-
                                Group is conducted to an overwhelming extent                                                                made if such entries prove, after consultation        Claudio Generali                                       egate of the Board of Directors of Euphonix Inc.,
                                by Swiss International Air Lines Ltd. Of the other      2.3 Changes of capital                              with the shareholder or nominee concerned, to         Deputy Chairman of the Board                           Palo Alto, and a Member of the Boards of Direc-
                                group member companies, only Europe Con-                Details of the changes to share capital in recent   have been made on the basis of false information.     Claudio Generali has been a Member of the Board        tors of Cablecom, Star TV, the Good News events
                                tinental Airways S.A. is active in the flight opera-    business years are provided on Page 112 of                                                                of Directors since June 7, 1991, was appointed         agency and skiing company Zai AG, and a Mem-
                                tions field. The remaining group member com-            the 2004 Financial Report, Page 129 of the          2.6.4 Procedure and conditions for cancel-            Second Deputy Chairman of the Board on Decem-          ber of the Industry Council of the London-based
                                panies primarily provide services in the sales and      2003 Financial Report and Page 70 of the            ling statutory privileges and limitations on          ber 6, 2001 and has been First Deputy Chairman         GMT Partners private equity fund. He is also ac-
                                training sectors. Further segment reporting             2002 Financial Report. The Financial Reports        transferability                                       of the Board and a Member of the Board’s Nomi-         tive for various charity organisations.
                                details are presented on Pages 75 and 82 of the         of recent years are available from the company      The company’s Articles of Incorporation contain       nation Committee since May 19, 2003. A 61-year-
                                Financial Report.                                       or can be viewed online at www.swiss.com.           no particular provisions regarding the procedure      old Swiss national, he studied business econom-        Michael Pieper
                                                                                                                                            and conditions for cancelling statutory privileges    ics at Geneva University. He has been Chairman         Member of the Board of Directors
                                1.1.2 Listed companies within the scope                 2.4 Shares and participation certificates           and limitations on transferability, or any corres-    of the Board of the Banco del Gottardo since           Michael Pieper has been a Member of the Board
                                of consolidation                                        The company has issued only one type of regis-      ponding qualified majority provisions.                March 1990. He served as a member of the Ticino        of Directors since November 24, 1978, and was
                                Swiss International Air Lines Ltd., which has its       tered share. These shares are, however, listed                                                            cantonal government from 1983 to 1989, with            appointed a Member of its Remuneration Com-
                                registered office in Basel, is the only group mem-      under two different securities numbers, because     2.7 Convertible bonds and options                     responsibility for its Finance and Building depart-    mittee on December 6, 2001. A Swiss national, he
                                ber company whose shares are listed on the SWX          the large majority of the company’s share           The company has no convertible bonds out-             ments. Prior to this, he had held the post of Dep-     is 58 years old. Michael Pieper has been active
                                Swiss Exchange in Zurich. The company’s trade-          capital (86 %) is subject to a lockup agreement     standing. Details of shares not yet allocated are     uty Managing Director of the Ticino Cantonal           with the Franke Group since 1988 and has been
                                able registered shares are listed under securities      preventing its sale until the end of August 2005    provided on Page 112 of the Financial Report.         Bank. He also served as President of the Foreign       its owner and Group CEO since 1989. After gradu-
                                number 1326969. The large majority of the com-          (but see also 10 below, “Major subsequent de-                                                             Banks Association for a ten-year period. In addi-      ating in business administration from the Univer-
                                pany’s share capital (86 %) is, however, subject        velopments between the balance sheet date and                                                             tion to his Swiss International Air Lines duties, he   sity of St. Gallen, he began his professional career
                                to a lockup agreement preventing its sale until         March 30, 2005”). Further details are provided                                                            serves on the boards of Batigroup and Schindler        with a Swiss industrial company, where he held
                                August 31, 2005. These shares are listed under a        on Pages 112 and 113 of the Financial Report.       3. Board of Directors                                 Elettronica SA. He is also Deputy Chairman of the       a range of positions. He worked in the USA from
                                separate securities number, 1533324 (but see                                                                                                                      Board of SRG-SSR Idée Suisse.                          1979 to 1983, initially with a bank and subse-
                                also 10 below, “Major subsequent developments           2.5 Bonus certificates                              3.1 Members of the Board of Directors and                                                                    quently with an investment company. He was
                                between the balance sheet date and March 30,            The company has not issued any bonus certifi-       their activities and business connections             Jacques Aigrain                                        appointed General Manager of a Swiss produc-
                                2005”). The stockmarket capitalisation of Swiss         cates.                                              The company’s Board of Directors comprised the        Member of the Board of Directors                       tion company in 1984. In addition to his duties
                                International Air Lines Ltd. on the balance sheet                                                           following eight members on the balance sheet          Jacques Aigrain has been a Member of the Board         with Swiss International Air Lines, he holds
                                date amounted to CHF 464 026 269.                       2.6 Limitations on transferability and              date of December 31, 2004. Urs Rohner and             of Directors and Chairman of its Audit Committee       key board mandates with Franke Holding AG,
                                                                                        nominee registrations                               André Kudelski relinquished their seats on the        since December 6, 2001. He is 50 years old and         Berenberg Bank (Schweiz) AG, Forbo Holding AG
                                1.1.3 Non-listed companies within                       2.6.1 Limitations on transferability                Board in the course of 2004. The Ordinary Gen-        a dual Swiss and French national. He studied eco-      and Hero AG. He is also a Member of the Super-
                                the scope of consolidation                              Under the company’s Articles of Incorporation,      eral Meeting of May 6, 2004 elected Rolf Jetzer       nomics (at the Dauphine, Paris) and law (at the        visory Board of Thyssen Krupp Steel AG.
                                A list of the companies within the scope of             the Board of Directors is empowered to refuse the   to the Board.                                         Sorbonne in Paris) before joining JP Morgan in
                                consolidation which are not listed on any stock         entry of a shareholder in the Share Register as                                                           1981. He went on to head the company’s Health-
                                exchange will be found on Page 118 of the               long as and to the extent that, to the knowledge    Pieter Bouw                                           care and Chemicals Merger & Acquisitions unit,
                                Financial Report.                                       available to it, recognition of the holder of the   Chairman of the Board                                 based in London, from 1991 to 1996. Following a
                                                                                        shares concerned as a full shareholder in the       Pieter Bouw has been a Member and Chairman            secondment to Paris, he was appointed Head
                                                                                        company could prevent the company from prov-        of the Board of Directors and Chairman of its         of Investment Banking in 1998, finally serving in


62                                                                                                                                                                                                                                                                                                        63
Swiss International Air Lines                         Corporate governance                                                                                         Swiss International Air Lines                          Corporate governance
Annual Report 2004                                                                                                                                                 Annual Report 2004




Jan Audun Reinas                                      3.2 Other activities and functions                    3.5.2 Members list, tasks and area                     it enables the company to recruit and retain           telephone conferences. Committee meetings             – to assess the special professional qualifications
Member of the Board of Directors                      With the exception of the functions mentioned in      of responsibility for each committee                   executives who are suitably qualified and skilled.     tend to last one to two hours. The committees           of auditors required to hold special professional
Jan Audun Reinas has been a Member of the             3.1 above, none of the Members of the Board of        of the Board of Directors                              All such remunerations are made contingent on          held a total of 14 meetings or telephone confer-        qualifications in cases in which the law pre-
Board of Directors and of its Audit Committee         Directors perform any activities in the governing     The company’s Board of Directors has estab-            both the company’s business results and the in-        ences in 2004. All the committees have an advi-         scribes the appointment of such auditors.
since May 6, 2003. He is 60 years old and a Nor-      or supervisory bodies of important organisations,     lished the following committees: the Audit             dividual performance of the executive concerned,       sory function, and make appropriate recommen-
wegian national. After studying economics and         institutions or foundations or perform permanent      Committee, the Nomination Committee, the               yet are also designed not to generate any false        dations to the full Board of Directors.               In addition to the above, the following business
holding various senior management positions in        management or advisory functions for significant      Remuneration Committee, an Ad-Hoc Legal                incentives. The committee also ensures that all                                                              transactions may only be effected with the prior
the public transport sector, he joined Scandi-        interest groups.                                      Committee and an Ad-Hoc Strategy Committee.            contracts of employment with the company’s top         3.6 Definition of areas of responsibility             approval of the Board of Directors:
navian Airlines and rose to become CEO of the                                                               These committees consist of up to four Board           executives are in line with general market condi-      The Board of Directors has issued a set of Organi-
SAS Group. He was appointed President & CEO of        3.3 Cross-involvement                                 Members, who are elected to their posts by the         tions and contain notice provisions which are in       sation Regulations delegating fully to the Mana-      – the acquisition and (if applicable) the financing
Norske Skog, one of the world’s biggest producer      There are no cross-involvements of Members            full Board for a three-year term. In addition to       the interests of the company.                          gement Board the conduct of the company’s               of capital assets with a net present value of
of paper for print media, in April 1994, a position   of the Board of Directors of Swiss International      the Members concerned, the meetings of these                                                                  operational business except where otherwise stip-       more than CHF 10 million;
he held until the end of 2003. He is also Chairman    Air Lines Ltd.                                        committees are generally attended by the Chair-        The Ad-Hoc Legal Committee is chaired by               ulated by the law, the company’s Articles of Incor-
of the Board of Norsk Hydro ASA, Oslo, a Member                                                             man of the Board and, as and when required,            Rolf Jetzer and has Jacques Aigrain as its further     poration or the same Organisation Regulations.        – the acquisition or disposal of shareholdings,
of the Boards of Directors of Schibsted ASA, Oslo     3.4 Elections and terms of office                     by the CEO, the Chief Financial Officer and/or the     member. Urs Rohner chaired the committee until                                                                 the opening or closure of branch offices or the
(one of Norway’s major media groups) and of           Walter Bosch and Jan Audun Reinas were elected        Head of Human Resources.                               his departure from the Board. The committee’s          The Board of Directors remains responsible for          founding or dissolution of subsidiaries;
Verdens Gang AS, Oslo (the country’s biggest          for a three-year term of office in May 2003.                                                                 meetings are generally also attended by the Vice-      the company’s ultimate direction and for the
daily newspaper) and elected shareholders’            Upon the Board’s recommendation, Pieter Bouw,         The Audit Committee is chaired by Jacques              President Legal Affairs and the Secretary General.     supervision and control of its business activities.   – the issuance or securing of loans or other finan-
representative to the corporate assembly of           Jacques Aigrain, Claudio Generali, Michael Pieper     Aigrain. Its further members are Pieter Bouw,          The committee assists and advises the company’s        It issues the requisite directives on business          cial instruments or the incurring of any financial
Rieber & Son, Bergen.                                 and Peter Siegenthaler were confirmed for a one-      Peter Siegenthaler and Jan Audun Reinas. André         top management and its Legal Affairs unit on legal     policy and informs itself regularly on the latest       liabilities through bills of exchange, cheques,
                                                      year term of office in May 2004, to achieve a nat-    Kudelski was a member of the Audit Committee           issues which are of key importance to the com-         business developments. The Management Board             guarantees, sureties or similar, insofar as
Peter Siegenthaler                                    ural staggering of Members’ periods of office.        until his departure from the Board. The com-           pany, and makes appropriate recommendations.           informs the Board of Directors without delay of         such transactions lie beyond the scope of the
Member of the Board of Directors                      Rolf Jetzer was elected for an ordinary three-year    mittee is primarily responsible for providing an                                                              all events, changes or developments which might         company’s ordinary business or exceed a net
Peter Siegenthaler has been a Member of the           term of office in May 2004. The Articles of Incor-    independent assessment of the quality of the           The Ad-Hoc Strategy Committee is headed by             have a tangible impact upon the company. In             present value of CHF 10 million;
Board of Directors and a Member of its Audit          poration do not foresee any staggered re-election     company’s external and internal auditing and its       Pieter Bouw and has Jacques Aigrain, Rolf Jetzer       particular, the Board of Directors has the follow-
Committee since December 6, 2001. A 56-year-          of Board Members. The Members of the Board            financial reporting. In particular, the committee      and Peter Siegenthaler as its further members.         ing inalienable and non-transferable areas of         – litigation or dispute settlements in matters of
old Swiss national, he has been Director of the       may be re-elected at any time for a further period    appraises the effectiveness of such external and       The committee assists and advises the compa-           responsibility:                                         administrative law relating to the withdrawal,
Swiss Federal Finance Administration since July       of office, but automatically retire from the Board    internal auditing, the collaboration between           ny’s top management on strategic issues, and                                                                   suspension or limitation of government approv-
2000. He studied legal and business sciences          upon reaching their 70th birthday. The Board of       these units, the company’s risk and compliance         makes appropriate recommendations.                     – to ultimately direct the company and issue            als or permits granted to the company or to
at Bern University, and has been with the Federal     Directors is self-constituting and appoints its own   management and its quarterly, half-yearly and                                                                   the necessary directives;                             the sequestration of aircraft, any criminal pro-
Finance Administration since 1982. In addition        Chairman and Secretary. The Secretary General         annual financial reporting. The committee also         3.5.3 Work methods of the Board of                                                                             ceedings or any litigation or dispute settlements
to his Swiss International Air Lines mandate,         need not be a Board Member. Reto Schmid               assesses the performance, fee-charging and in-         Directors and its committees                           – to determine the corporate organisation;              in matters of commercial law, insofar as the
he serves as Chairman of the Board of Hotel           currently serves as Secretary General to the          dependence of the company’s external auditors.         The Board of Directors generally holds monthly                                                                 amount at issue exceeds CHF 5 million.
Bellevue-Palace AG, Bern, on behalf of the Swiss      Board of Directors, a position he has held since      The committee makes recommendations to the             ordinary meetings which last a full day. In addition   – to organise the accounting, financial control
Confederation.                                        May 1, 2002.                                          Board of Directors in the light of these activities.   to these, it holds extraordinary meetings and            and financial planning;                             3.7 Information and control instruments
                                                                                                                                                                   telephone conferences or passes resolutions by                                                               vis-à-vis the Management Board
Rolf P. Jetzer                                        3.5 Internal organisational structure                 The Nomination Committee is chaired by                 circular letter as and when required. The Board        – to appoint and dismiss the persons entrusted        The Board of Directors has various information
Member of the Board of Directors                      3.5.1 Allocation of tasks within the Board            Pieter Bouw and has Claudio Generali, Walter           of Directors held a total of 13 meetings and three       with the management and representation of the       and control instruments at its disposal with re-
Rolf Jetzer has been a Member of the Board of         of Directors                                          Bosch and Michael Pieper as its further members.       telephone conferences in 2004, and passed four           company and issue the appropriate signatory         gard to the Management Board.
Directors and Chairman of its Remuneration            The following Members of the Board of Directors       Urs Rohner served on the Nomination Committee          resolutions by circular letter. As well as its Mem-      authorities;
Committee since May 6, 2004. A 54-year-old            hold particular functions:                            until his departure. The committee makes re-           bers, the Board’s meetings are attended by the                                                               The Chairman of the Board is active on the com-
Swiss national, he has been a partner at the                                                                commendations to the Board of Directors on the         CEO, the other members of the Management               – to ultimately supervise the persons entrusted       pany’s behalf for around 60 % of his total working
Zurich-based Niederer Kraft & Frey law firm since     Pieter Bouw,                                          election or re-election of Board Members and           Board and the Secretary General. In addition, the        with the management of the company, particu-        hours, and is correspondingly informed in detail
1988. After studying law at the University of         Chairman of the Board and                             on appointments to top management (the CEO,            heads of the various business units occasionally         larly their compliance with the law and the com-    of business developments and activities. He
Zurich, he served with various law firms in the       Chairman of the Nomination Committee                  the Managing Directors and the Executive Vice-         present proposals from their units personally to         pany’s Articles of Incorporation, regulations       worked full-time for the company while tempo-
USA before joining Niederer Kraft & Frey in 1982.     Pieter Bouw held no executive function on the         Presidents) and selected Vice-Presidents (the          the Board of Directors, or are at least available        and directives;                                     rarily performing the dual functions of Chairman
He will be proposed to the General Meeting of         company’s Management Board on the balance             Heads of Corporate Communications and Legal            on request to clarify any questions. The Safety                                                              of the Board and acting CEO. The Secretary
Shareholders of Bank Julius Bär & Julius Bär Hol-     sheet date of December 31, 2004. He did, how-         Affairs, the Secretary General and the Internal        Advisory Board, the Vice-President Safety and the      – to produce the Annual Report and prepare the        General also attends all Management Board
ding AG for election to their Board of Directors      ever, devote some 60 % of his working hours to        Auditor). The committee is also responsible for        Vice-President Internal Auditing report directly         General Meeting, and to implement the latter’s      meetings, informs the Chairman of the Board
on April 12, 2005.                                    the company as its Chairman of the Board in the       selecting the candidates concerned, and makes          to the Board of Directors on a regular basis.            resolutions;                                        accordingly and assists in and monitors the im-
                                                      course of the year. He further served as acting       corresponding recommendations to the Board             The Vice-President Corporate Communications is                                                               plementation of Board resolutions. The Secretary
None of the Members of the Board of Directors         company CEO for a limited period (see 3.1).           on their election or appointment.                      consulted on communications issues. External           – to inform the legal authorities in the event        General also informs the Board of Directors im-
served on the management of the company                                                                                                                            advisers such as attorneys, insurance specialists        of overindebtedness;                                mediately of any major developments or events.
or any of its group member companies at any           Claudio Generali,                                     The Remuneration Committee is chaired                  and consultants occasionally also attend Board                                                               The Board of Directors receives detailed reports
time prior to their election or appointment to the    First Deputy Chairman of the Board                    by Rolf Jetzer and has Michael Pieper and Pieter       meetings for the discussion of specialist issues.      – to pass resolutions regarding the subsequent        of business developments at its monthly meet-
Board; and none of the Members of the Board                                                                 Bouw as its further members. André Kudelski            Wherever possible, meeting documentation is              paying-in of amounts on non-fully-paid-up           ings. Every Board Member is provided with com-
of Directors has any important business connec-       Walter Bosch,                                         served on the committee until his departure. The       sent to all Board Members for their perusal a week       shares;                                             prehensive documentation every month from the
tions with the company or any of its group mem-       Second Deputy Chairman of the Board                   Remuneration Committee is responsible for de-          in advance of the meeting concerned.                                                                         company’s Management Information System
ber companies either personally or via companies      and Lead Director                                     fining the remuneration policy for the company’s                                                              – to pass resolutions on ascertainments relating      (MIS). Every Board Member further receives a
they represent.                                                                                             top management. In doing so, it ensures that the       The committees of the Board of Directors meet            to capital increases and the appropriate modi-      monthly summary Treasury Report.
                                                                                                            remuneration concerned is both based on per-           according to need – generally on the day of the          fications to the company’s Articles of Incorpo-
                                                                                                            formance and in line with market levels, and that      ordinary Board meetings – or communicate via             ration;

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Annual Report 2004                                                                                                                                                  Annual Report 2004




The company also maintains its own Internal             Details of Management Board members                   Ulrik Svensson has been the company’s Chief           SWISS organisation structure
Auditing unit, which reports directly to the Board      Christoph Franz assumed his duties as Presi-          Financial Officer since May 12, 2003, with overall    (as per January 1, 2005)
of Directors. It has further established a Safety       dent & Chief Executive Officer on July 1, 2004,       responsibility for its Finance, Corporate Services
Advisory Board which consists of globally-ac-           having spent the previous two months familiar-        and IT business units. 44 years old and a Swedish                                                               Chairman of the Board
knowledged experts in aviation safety and reports       ising himself with the company and its business       national, he holds a degree in business adminis-                                                                Pieter Bouw
directly to the Board of Directors on a regular         activities. A 44-year-old German national with a      tration from the Stockholm School of Economics.
basis. The Vice-President Safety, who is respon-        doctorate in business administration, Christoph       His professional career took him to senior man-
sible for all safety issues, also reports directly to   Franz spent nine years in various executive posi-     agement positions in the finance divisions of
the Board of Directors on a regular basis. Finally,     tions at Deutsche Bahn AG, culminating in his         several companies including Swedish Match,
the Secretary General is available to any Board         appointment as a Member of Executive Manage-          Millicom International Cellular S.A., Société Euro-                                   VP Internal Audit                                 VP Secretary General
Member at any time to provide any additional            ment and CEO Passenger Sales. From 1990 to            péenne de Communication S.A., The Stenbeck                                            Rolf-Christian Andersen                           Reto Schmid
information desired.                                    1994 he was with Lufthansa, where he held             Group and Esselte.
                                                        various management functions that included his
Further risk management information regarding           membership of the CEO’s staff team responsible        Oliver Evans has been Chief Sales & Marketing
financial risks is provided on Pages 103–104 of         for planning the airline’s corporate turnaround.      Officer since October 18, 2004. In this capacity                                                                President and
the Financial Report.                                   Christoph Franz is also a Member of the Super-        he is in overall charge of the company’s Sales &                                                                Chief Executive Officer
                                                        visory Board of DF Deutsche Forfait AG.               Marketing division, which includes its Swiss                                                                    Christoph Franz
                                                                                                              WorldCargo business unit. A 51-year-old British-
                                                        Manfred Brennwald has been the company’s              French dual national, Oliver Evans can draw on
4. Management Board                                     Chief Operations Officer since April 1, 2003. In      many years of experience in both the sales & mar-
                                                        this capacity, he bears overall management res-       keting and the cargo fields. Prior to assuming his                                    VP Corporate Communications                       EVP Human Resources
4.1 Members of the Management Board                     ponsibility for its Flight Operations and Technical   present position, he had served as Head of Swiss                                      Jürg Dinner                                       Antonio Schulthess
and their activities and business connections           Services business units. A 53-year-old Swiss na-      WorldCargo since December 2002. He had pre-
The Management Board saw personnel changes              tional, Manfred Brennwald completed his studies       viously held various positions at KLM, rising to
and expansion in 2004. It comprised on Decem-           in machine engineering before going on to obtain      Vice President Strategy & Alliances of KLM Cargo
ber 31, 2004:                                           his air transport pilot’s licence from the Swiss      before moving to BAX Global in 2001 to become
                                                        Civil Aviation School. He subsequently served as      Vice President Global Sales Europe, Middle East &                                     VP Aeropolitical Affairs                          EVP Corporate Strategy
Christoph Franz                                         a Swissair pilot for several years, while simulta-    Africa.                                                                               Kurt Jäger                                        Christoph Beckmann
President & Chief Executive Officer                     neously completing the Executive Development
                                                        Program at the University of California, Berkeley.    Harry Hohmeister has been Chief Network
Ulrik Svensson                                          In addition to his pilot’s career, which ultimately   Officer since January 1, 2005, with responsibility
Chief Financial Officer                                 led him to the commander’s seat on the Airbus         for the company’s Network division. 41 years old                                      VP Public Affairs & Environment
                                                        A330, he served as head of the Swiss Civil Aviation   and a German national, Harry Hohmeister spent                                         Paul Kurrus
Manfred Brennwald                                       School from 1992 until his appointment as             several years training in the German army after
Chief Operations Officer                                Swissair’s Head of Flying Staff Recruitment and       leaving school. He then joined Lufthansa and
                                                        Training in 1995. He was then appointed Pres-         trained as a commercial air transport officer. He
Oliver Evans                                            ident & CEO of Swissair Training Center AG in         held various functions at Lufthansa between
Chief Sales & Marketing Officer                         2001, and was promoted a short time later to          1988 and 2000, rising to become Vice President
                                                        Executive Vice-President Operations and a mem-        Network Planning. In 2000 he moved to C&N
Harry Hohmeister                                        ber of Swissair Executive Management. He be-          Touristic AG, which became Thomas Cook AG in           Chief Operations Officer               Chief Financial Officer               Chief Sales &                Chief Network Officer
Chief Network Officer                                   came Deputy Head of Flight Operations at Swiss        June 2001. After initially serving as Executive        Manfred Brennwald                      Ulrik Svensson                        Marketing Officer            Harry Hohmeister
                                                        International Air Lines Ltd. in March 2002, and       Vice President Capacity and Yield Management,                                                                                       Oliver Evans
Management Board meetings are also generally            was promoted to Managing Director Operations          he was appointed Executive Vice President Airline      Member of the                          Member of the                         Member of the                Member of the
attended in an advisory capacity by the following       in April 2003. He is also a Member of the Board of    Team Management and later Airline Business             Management Board                       Management Board                      Management Board             Management Board
holders of staff functions:                             Directors of Swiss AviationTraining Ltd. and is a     Management of Thomas Cook Airlines/Condor
                                                        Member of the Board of Governors of the Flight        in March 2003.
Christoph Beckmann                                      Safety Foundation.                                                                                              EVP Flight Operations                  EVP Corp. Accounting                     EVP Cargo
Executive Vice-President Corporate Strategy                                                                                                                             Gaudenz Ambühl                         & Controlling                            tbn
                                                                                                                                                                                                               Marcel Klaus
Antonio Schulthess
Executive Vice-President Human Resources

Robert Bornträger                                                                                                                                                       EVP Technical Division                 EVP Information
Executive Vice-President Information Technology                                                                                                                         Helmut Himmelreich                     Technology
and Head of the CIS Restructuring Programme                                                                                                                                                                    Robert Bornträger

Jürg Dinner
Vice-President Corporate Communications                                                                                                                                                                        Chief Procurement Officer
                                                                                                                                                                                                               Frans de Maat
Reto Schmid
Vice-President Secretary General


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Annual Report 2004                                                                                                                                                Annual Report 2004




4.2 Management contracts                              5.2 Compensations for acting members                  5.5 Share ownership                                   6. Shareholders’ participation rights                 7.2 Clause on changes of control                    9. Information policy
The company concluded a limited management            of governing bodies                                   Members of the Management Board and                                                                         Under a contractual change-of-control provision,
contract in 2004 with Jens-Uwe Bruysten, who          5.2.1 Total of all compensations to the               parties closely linked to them held a total of        6.1 Voting-rights restrictions and                    one member of the Management Board is en-           Swiss International Air Lines provides existing and
served as interim Head of Human Resources             Board of Directors                                    21 242 shares in the company on the balance           representation                                        titled to terminate his employment at shorter       potential investors with comprehensive informa-
to bridge the period between the departure of         The Members of the Board of Directors received        sheet date of December 31, 2004.                      The company’s Articles of Incorporation contain       notice (90 days instead of 6 months). Under this    tion about the company, its strategy, its business
Kurt Renggli and the assumption of office of          an aggregate remuneration of CHF 2 013 000 in                                                               neither restrictions on voting rights nor any stat-   same change-of-control provision, the contrac-      development and all events at and around the
the new Executive Vice-President Human Resour-        emoluments, meeting fees and expenses in 2004         The non-executive Members of the Board of             utory rules on participation in General Meetings      tual severance payment which would be due if the    company. In doing so, it strives to provide open
ces Antonio Schulthess. Total compensation            (for shares received, see 5.4 below). This amount     Directors and parties closely linked to them held a   which deviate from the applicable legal provi-        company terminated such employment would            and transparent information swiftly and simulta-
under this contract for the period from July 2004     also includes the additional remuneration paid to     total of 17445 shares in the company on the           sions.                                                also be due if notice was served by the employee.   neously on all key corporate developments.
to January 2005 amounted to CHF 101 000.              Pieter Bouw for his services as acting CEO.           balance sheet date of December 31, 2004. They
                                                                                                            are further entitled to 29 431 shares for the         6.2 Statutory quorums                                                                                     The company provides the capital markets with
                                                      Board Members are also entitled to free First Class   prior-year period which have been allocated but       The company’s Articles of Incorporation do not                                                            monthly information on its traffic statistics (num-
                                                      travel on the company’s air services for them-        not yet issued to the individuals concerned.          contain any statutory rules on the quorums re-        8. Auditors                                         ber of flights performed, numbers of passengers
5. Compensations, shareholdings and loans             selves, their spouse and their children up to age                                                           quired for resolutions of General Meetings which                                                          carried, seat load factor). It also issues a quarterly
                                                      24, provided such travel is solely for private pur-   5.6 Options                                           deviate from the applicable legal provisions.         8.1 Duration of the mandate and term of             income statement and balance sheet. The com-
5.1 Content and method of determining                 poses. When travelling for business purposes          Neither Members of the Board of Directors and                                                               office of the head auditor                          pany’s www.swiss.com website further supplies
the compensations and of the shareholding             (except on SWISS business), Board Members or          Management Board nor parties closely linked to        6.3 Convocation of the general meeting                8.1.1 Date of assumption of the existing            interested parties with regularly-updated infor-
programmes                                            their employers pay the normal applicable fare.       them held any options on company shares on the        of shareholders                                       auditing mandate                                    mation.
Every Member of the company’s Board of Direc-                                                               balance sheet date of December 31, 2004.              The statutory rules on the convocation of the         KPMG Fides Peat, Zurich, the company’s Statu-
tors (with the exception of the Chairman) earns a     5.2.2 Total of all compensations to                                                                         General Meeting are in accordance with the Swiss      tory Auditors, were elected to this office at the   The company’s shareholders are kept informed
symbolic emolument of CHF 1 per year for their        Management Board Members                              5.7 Additional honorariums and                        Code of Obligations. The Articles of Incorporation    General Meeting of 1975 and were entered into       about business trends and developments through
Board activities, together with a meeting atten-      The Members of the Management Board received          remunerations                                         do not provide for any deviations from the appli-     the Commercial Register on September 13, 1994       the General Meeting and half-yearly and quarterly
dance fee (CHF 2 000 per day, or CHF 6 000            an aggregate remuneration of CHF 3 412 000            Under this item would be shown any emoluments         cable legal provisions.                               (when such entry became a legal requirement         reports, and are provided with additional informa-
for Board Members resident outside Europe).           (in salaries, meeting fees, expenses and perfor-      or other remuneration received by a Member of                                                               following an amendment to the Swiss Code of         tion as and when required. The company also di-
One Board Member resident in Europe receives          mance-related variable salaries) in 2004. The         the Board of Directors or Management Board            6.4 Agenda                                            Obligations).                                       rectly answered countless written inquiries from
the higher meeting attendance fee in view of          additional remuneration paid to Pieter Bouw for       (or parties closely linked to them) billed to Swiss   Any shareholder(s) representing shares with a                                                             shareholders in 2004.
the complexities of the travel involved. Travel and   his services as acting CEO is included in 5.2.1       International Air Lines or any of its group member    total nominal value of CHF 1 million may demand       8.1.2 Date of assumption of duties
accommodation expenses are reimbursed at              above.                                                companies for any additional services performed       that a particular item of business be placed on the   by the head auditor
cost. Each Board Member also receives up to                                                                 on these companies’ behalf during the year under      agenda of the General Meeting. All such requests      As of the business year 2003, the Head Auditor
500 company shares per year. The number of            Members of the Management Board are also en-          review, insofar as such compensation exceeds          must be submitted to the Board of Directors in        charged with auditing the company’s accounts        10. Major subsequent developments
shares to be awarded is determined by the Remu-       titled to free First Class travel on the company’s    one-half of the ordinary remuneration of the          writing with details of the item to be discussed      is Mr. Orlando Lanfranchi.                          between the balance sheet date and
neration Committee. The Chairman of the Board         air services, and to a company car.                   member of the governing body concerned. No            and the proposal(s) concerned.                                                                            March 30, 2005
is entitled to a fixed annual remuneration together                                                         such additional emoluments or other remunera-                                                               8.2 Auditing honorarium
with a variable results-based annual remunera-        5.2.3 Severance payments to persons who               tions were paid in the year under review.             The Board of Directors announces the date of the      KPMG Fides Peat, Zurich charged a total of          On March 22, 2005 the Supervisory Board of
tion. The Chairman of the Board additionally          gave up their functions in a governing body                                                                 Ordinary General Meeting in good time and spec-       CHF 1 056 000 for the fulfilment of their legal     Deutsche Lufthansa AG and the company’s Board
served as acting CEO for around five months in        during the year under review                          5.8 Loans granted by governing bodies                 ifies a deadline by when requests for items to be     obligations as Statutory and Group Auditors         of Directors approved a business model devised
2004. The substantial additional workload which       The company agreed on termination agreements          There are no loans granted by governing bodies.       included on the meeting’s agenda can be submit-       in 2004.                                            by both companies for SWISS’s acquisition by
these extra duties entailed was reflected in his      with various members of the former Manage-                                                                  ted by shareholders. Since any such requests                                                              Lufthansa and its integration into the Lufthansa
annual remuneration. The Chairman’s fixed an-         ment Board. No payments made under these              5.9 Highest total compensation                        must be considered by the Board of Directors and      8.3 Additional honorariums                          Group. The Swiss Confederation, Canton Zurich
nual remuneration amounted to CHF 1 082 000,          agreements exceeded the contractual obligations       The highest total compensation paid to any            included in the invitation to shareholders, this      KPMG charged a total of CHF 693 000 for their       and further major shareholders support this
while his variable results-based annual remu-         of the company resulting from the respective          Member of the Board of Directors in 2004 was to       deadline is some two months in advance of             performance of additional services in 2004          transaction. By the end of March 2005, share-
neration is expected to amount to around              labour contracts. Total severance payments for        the Chairman of the Board, who, in devoting some      the meeting concerned. It is communicated to          beyond their legal obligations as covered by        holders representing just under 84 % of the com-
CHF 500 000. The precise amount of the variable       2004 amounted to CHF 2 841 000.                       60 % of his working hours to his position, is sub-    shareholders by letter and through its publication    8.2 above. The additional honorariums related       pany’s share capital had agreed to transfer their
remuneration part will be determined by the                                                                 stantially more active on the company’s behalf        in the Swiss Official Gazette of Commerce.            to tax and legal advice.                            shares to AirTrust AG, Zug, which is serving as the
Board’s Remuneration Committee.                       5.3 Compensations for former members                  than any other Board Member. The Chairman also                                                                                                                  takeover company in this transaction.
                                                      of governing bodies                                   performed a considerable amount of additional         6.5 Registrations in the share register               8.4 Supervisory and control instruments
All Members of the Management Board receive a         No payments were made to former members               work in 2004 through his assumption of sup-           The company’s Share Register is closed to new         vis-à-vis the auditors                              The aim of the transaction is the full acquisition of
salary which consists of a fixed component and a      of a governing body in 2004.                          plementary duties as acting CEO for around five       shareholders twelve days before the date of each      The Audit Committee of the Board of Directors       SWISS by Lufthansa. In view of the anti-competi-
variable results-based component that is linked to                                                          months. The total compensation paid to the            General Meeting.                                      assesses the performance, fee-charging and          tion issues involved and in order to ensure that
the achievement of corporate, divisional and per-     5.4 Share allotments in the year under review         Chairman of the Board in 2004 amounted to                                                                   independence of the external auditors and makes     existing traffic rights can be retained, the acqui-
sonal performance targets. The Board of Direc-        Board of Directors                                    CHF 1 582 000, though the precise amount of                                                                 corresponding recommendations to the Board          sition is being effected in multiple stages. In a
tors has acted on recommendations from the            A total of 3 500 shares were issued to the            the variable remuneration component contained                                                               of Directors. The Statutory Auditors provide the    transition phase, SWISS shares will be held by a
Remuneration Committee to fix salary bands for        Members of the Board of Directors for the 2004        therein is still to be determined by the Remune-      7. Changes of control                                 Management Board and the Audit Committee            newly-founded Swiss company, AirTrust AG. In an
the various management levels and a scale for         business year.                                        ration Committee.                                                                                           with regular reports showing the results of their   initial step, Lufthansa will acquire 11 % of AirTrust.
part-payments of that part of the variable salary                                                                                                                 7.1 Duty to make an offer                             activities and their recommendations in the light   Once the proposed integration has been ap-
component which is dependent on the com-              Management Board                                                                                            The company’s Articles of Incorporation contain       of the same. A representative from the Statutory    proved by the relevant competition authorities,
pany’s overall business results.                      No shares were issued to the Members of the                                                                 neither “opting out” nor “opting up” clauses. Any     Auditors attended numerous meetings and             this holding will be increased to 49 %. Parallel to
                                                      Management Board for the 2004 business year.                                                                duty to make an offer is thus as specified in the     phone conferences of the Audit Committee or         these activities, negotiations will be conducted
                                                                                                                                                                  provisions of the Swiss Securities Exchange Act.      the full Board of Directors in 2004.                to secure SWISS’s current traffic rights. Once the
                                                                                                                                                                                                                                                                            corresponding agreements have been conclud-
                                                                                                                                                                                                                                                                            ed, Lufthansa will acquire 100 % of SWISS. It
                                                                                                                                                                                                                                                                            is also envisaged that, once the 49 % holding in

68                                                                                                                                                                                                                                                                                                                             69
Swiss International Air Lines                          Corporate governance
Annual Report 2004




AirTrust has been obtained by Lufthansa, the
company’s Board of Directors will be newly
appointed and will be simultaneously reduced
to five members.

Lufthansa will also be submitting a takeover offer
to the company’s free-float shareholders via
AirTrust, probably at the beginning of May 2005.
Advance notice of this takeover offer was given
and correspondingly published on March 23,
2005. For details, please see the publication
concerned.

In exchange for their shares, SWISS’s major
shareholders will receive an outperformance
option whose payment in 2008 will depend on
the performance of the Lufthansa share com-
pared to reference shares of its competitors. If
the Lufthansa share outperforms this benchmark
by 50 %, the maximum payment of around
CHF 390 million will be made. Shareholders rep-
resenting just under 83 % of the company’s share
capital have agreed to this arrangement to date.
In view of this agreement, and at the request of
the shareholders concerned, the share disposal
restrictions specified in 2.4 above were rescinded
on March 22, 2005.

The total purchase price for the full acquisition of
SWISS thus lies between around CHF 70 million
and CHF 460 million. Further details of the trans-
action are available from the company or online
at www.swiss.com/About Swiss/News/Press/
Releases/2005.

The company has made modifications to its
organisation under its corporate restructuring
programme. The current organisation chart is
available from the company or can be viewed on
its www.swiss.com website.




                                                                              Séverine Piller
                                                                              Flight Attendant
70                                                                            photographed on an Airbus A340
     Swiss International Air Lines
     Financial Report 2004




     Financial
     Report 2004




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Swiss International Air Lines   Financial Report 2004   Swiss International Air Lines   Financial Report 2004
Annual Report 2004                                      Annual Report 2004




                                Swiss
                                                        Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                              and the CEO                           7



                                                                                        Products and services                 SWISS: tailored to your needs       12


                                International                                           The 2004 business year
                                                                                                                              Swiss WorldCargo



                                                                                                                              Substantial progress towards
                                                                                                                                                                  15




                                Air Lines Group                                                                               a competitive company
                                                                                                                              2004 financial results
                                                                                                                              SWISS at a glance
                                                                                                                                                                  22
                                                                                                                                                                  24
                                                                                                                                                                  26



                                                                                        Facts and figures                     Traffic results for 2004            34
                                                                                                                              The route network                   36
                                                                                                                              The aircraft fleet                  38



                                                                                        Environmental and political affairs   SWISS and the environment           44
                                                                                                                              Aeropolitical affairs               48



                                                                                        The fascination of flying             SWISS, a network carrier            54
                                                                                                                              The Operations Control Center       56



                                                                                        Corporate governance                                                      62




                                                        Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                              Consolidated balance sheet          77
                                                                                                                              Consolidated statement of
                                                                                                                              changes in shareholders’ equity     78
                                                                                                                              Consolidated cash flow statement    79
                                                                                                                              Notes to the consolidated
                                                                                                                              financial statements                 80
                                                                                                                              Report of the Group Auditors        126
                                                                                                                              Five-year review                    127



                                                                                        Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                              Balance sheet                       131
                                                                                                                              Notes to the financial statements   132
                                                                                                                              Report of the Statutory Auditors    141



                                                                                        Contacts                                                                  144
Swiss International Air Lines Group                Financial Report 2004                               Swiss International Air Lines Group          Financial Report 2004
Annual Report 2004                                 Consolidated income statement                       Annual Report 2004                           Consolidated balance sheet




Consolidated                                                                                           Consolidated
income statement                                                                                       balance sheet
                                                                                                       as of December 31
CHF million                                                             Note          2004     2003    CHF million                                                        Note   2004    2003

Revenue from scheduled services                                                      2 936     3 326   Cash and cash equivalents                                          14      481     503
Revenue from cargo services                                                            442       498   Fixed-term deposits (3–12 months)                                            4       0
Revenue from charter services                                                           95       133   Derivative assets                                                  15       11      52
Revenue from other operations                                           3               46        50   Trade receivables                                                  16      233     362
                                                                                                       Other receivables                                                  17       21     163
Total revenue                                                                        3 519    4 007    Inventories                                                        18       29      33
                                                                                                       Prepaid expenses and accrued income                                         29      34

Gain on disposal of fixed and intangible assets                         4                1        3    Current assets                                                             808    1 147
Other operating income                                                  5              122      116

Total income from operating activities                                               3 642    4 126    Aircraft fleet                                                     19     1 927   2 247
                                                                                                       Property, plant and equipment                                      20       193     246
                                                                                                       Intangible assets                                                  21        18      19
Cost of materials                                                       6            –1 020   –1 262   Investments in associates                                          22         5       6
Cost of services                                                        7            –1 170   –1 401   Loans and other investments                                        23       171     208
Personnel expenses                                                      8             –774     –958    Deferred tax assets                                                24         1       1
Depreciation and amortisation                                           19, 20, 21    –310     –251
Impairments                                                             19, 20, 21    –174     –104    Non-current assets                                                        2 315   2 727
Loss on disposal of fixed and intangible assets                         9                –6      –13
Other operating expenses                                                10            –310     –635
                                                                                                       Total assets                                                              3 123   3 874
Loss from operating activities (EBIT) before restructuring costs                      –122     –498


Restructuring costs                                                     29               0     –205
                                                                                                       Trade payables                                                     25      245     277
Loss from operating activities (EBIT) after restructuring costs                       –122     –703    Interest-bearing liabilities                                       26      244     286
                                                                                                       Derivative liabilities                                             15       22      20
                                                                                                       Other payables                                                              33      54
Income from associates                                                  2                0        1    Unearned transportation revenue                                    27      385     519
Financial expenses                                                      11             –64      –53    Accrued expenses and prepaid income                                        296     345
Impairment due to currency exchange losses on prepayments
 made for cancelled aircraft orders                                     11             –23        0    Current liabilities                                                       1 225   1 501
Financial income                                                        12              70       72

Loss before tax (EBT)                                                                 –139     –683    Interest-bearing liabilities                                       26      831     920
                                                                                                       Employee benefit obligations                                       28       11      19
                                                                                                       Provisions                                                         29      204     406
Income taxes                                                            13              –1       –3    Deferred tax liabilities                                           24        0       0

Loss after tax                                                                        –140     –686    Non-current liabilities                                                   1 046   1 345


Minority interest                                                                        0       –1    Total liabilities                                                         2 271   2 846

Net loss for the year                                                                 –140     –687
                                                                                                       Minority interest                                                            4       6

in CHF
Earnings per share (basic)                                              32           –2.66    –13.06   Share capital                                                      32      948    1 685
Earnings per share (fully diluted)                                      32           –2.66    –13.06   Treasury shares                                                    32        0        0
                                                                                                       Reserves                                                           32     –100    –663

                                                                                                       Total shareholders’ equity                                                 848    1 022

                                                                                                       Total shareholders’ equity and liabilities                                3 123   3 874




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Swiss International Air Lines Group              Financial Report 2004                                                                    Swiss International Air Lines Group                    Financial Report 2004
Annual Report 2004                               Consolidated statement of changes                                                        Annual Report 2004                                     Consolidated cash flow statement
                                                 in shareholders’ equity




Consolidated statement of                                                                                                                 Consolidated
changes in shareholders’ equity                                                                                                           cash flow statement

CHF million                                                                          Trans-                                               CHF million                                                                               Note   2004   2003
                                                 Share       Share       Treasury    lation    Hedging   Revaluation   Retained
                                                 capital     premium     shares      reserve   reserve   reserve       earnings   Total   Net loss for the year                                                                            –140   –687

Balance at January 1, 2003                       2 627        338          0           –1       19          2          –1 276     1 709   Depreciation and amortisation                                                                     310    251
                                                                                                                                          Impairments                                                                                       174    104
Revaluation of available-for-sale investments        0           0         0            0         0         0               0        0    Net foreign exchange result                                                               12      –61    –54
Currency translation differences                     0           0         0            1         0         0               0        1    Impairment due to currency exchange losses on prepayments
Gains/(losses) on hedging instruments                0           0         0            0         1         0               0        1     made for cancelled aircraft orders                                                       11       23      0
(Gains)/losses transferred to income statement       0           0         0            0         0        –2               0       –2    Net loss on disposal of fixed and intangible assets                                       4, 9      5     10
                                                                                                                                          Share of (profit)/loss of associates                                                                0     –1
Net gains/losses recognised directly in equity       0           0         0            1         1        –2               0        0    Net gain from transfer of airport slots                                                   5       –29      0
                                                                                                                                          Net creation/(release) of provisions                                                      29      –12    343
                                                                                                                                          Recognition on income statement of unearned transportation revenue                        27     –181   –106
Net loss for the year                                0           0         0            0         0         0           –687      –687    Interest expenses                                                                         11       55     49
Share capital and capital reduction               –946        –338         0            0         0         0           1 284        0    Interest income                                                                           12       –9    –18
Shares issued (conditional capital)                  4           0         0            0         0         0              –4        0    Income taxes                                                                              13        1      3
Equity transaction costs                             0           0         0            0         0         0               0        0    Minority interest                                                                                   0      1
Dividends to shareholders                            0           0         0            0         0         0               0        0
                                                                                                                                          Decrease in trade and other receivables                                                           278    180
Balance at December 31, 2003                     1 685           0         0            0       20          0           –683      1 022   Decrease in inventories                                                                             4      7
                                                                                                                                          Decrease in prepaid expenses and accrued income                                                     5     18
                                                                                                                                          Decrease in trade and other payables                                                              –50   –185
                                                                                                                                          (Decrease)/increase in accrued expenses and prepaid income                                         –2     30
                                                                                                                                          Decrease in employee benefit obligations                                                           –8    –23
Balance at January 1, 2004                       1 685           0         0            0       20          0           –683      1 022   Decrease in provisions                                                                    29     –173   –259
                                                                                                                                          Income tax paid                                                                                    –1     –3
Revaluation of available-for-sale investments        0           0         0            0         0         0               0        0
Currency translation differences                     0           0         0            0         0         0               0        0    Cash flow from operating activities                                                              189    –340
Gains/(losses) on hedging instruments                0           0         0            0       –15         0               0      –15
(Gains)/losses transferred to income statement       0           0         0            0       –19         0               0      –19
                                                                                                                                          Acquisitions of aircraft                                                                  19      –88   –173
Net gains/losses recognised directly in equity       0           0         0            0      –34          0               0      –34    Disposals of aircraft and sale-and-leaseback transactions                                          26    141
                                                                                                                                          Acquisitions of property, plant and equipment                                             20       –3    –61
                                                                                                                                          Disposals of property, plant and equipment                                                          5      1
Net loss for the year                                0           0         0            0         0         0           –140      –140    Acquisitions of intangible assets                                                         21       –4    –11
Capital reduction                                 –737           0         0            0         0         0            737         0    Acquisitions of subsidiaries and minorities, net of cash acquired                         2         0     –1
Shares issued (conditional capital)                  0           0         0            0         0         0              0         0    Acquisitions of other financial assets (including associates)                                      –4      0
Equity transaction costs                             0           0         0            0         0         0              0         0    Disposals of other financial assets                                                                35    128
Dividends to shareholders                            0           0         0            0         0         0              0         0    Transfer of airport slots                                                                          29      0
                                                                                                                                          Interest received                                                                                   9     18
Balance at December 31, 2004                      948            0         0            0      –14          0            –86       848    Dividends received                                                                        22        0      3

                                                                                                                                          Cash flow from investing activities                                                                5      45


                                                                                                                                          Interest paid                                                                                     –56    –58
                                                                                                                                          Increase in financial liabilities                                                                 126     24
                                                                                                                                          Decrease in financial liabilities                                                                –128   –252
                                                                                                                                          Payment of finance lease liabilities                                                             –151    –40
                                                                                                                                          Dividends paid to minorities                                                                       –2      0

                                                                                                                                          Cash flow from financing activities                                                              –211   –326


                                                                                                                                          Decrease in cash and cash equivalents                                                             –17   –621
                                                                                                                                          Effect of exchange rate differences                                                                –5     –4

                                                                                                                                          Cash and cash equivalents as of January 1                                                 14      503   1 128

                                                                                                                                          Cash and cash equivalents as of December 31                                               14      481    503


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Swiss International Air Lines Group   Financial Report 2004                                                                                              Swiss International Air Lines Group   Financial Report 2004
Annual Report 2004                    Notes to the consolidated financial statements                                                                     Annual Report 2004                    Notes to the consolidated financial statements




Notes to the consolidated
financial statements

Significant accounting policies                                                                                                                          Foreign currency translation

General                               Swiss International Air Lines Ltd. (the “Company”)       The consolidated financial statements have been           Foreign currency transactions         Transactions in foreign currencies are translated         lation are recognised in the income statement.
                                      is an enterprise domiciled in Basel, Switzerland.        prepared on a going concern basis (see Note 39            and balances                          at the foreign exchange rate ruling at the date of        Available-for-sale investments denominated in
                                      The consolidated financial statements for the            for a discussion of business risks).                                                            the transaction or at average rates that approximate      foreign currencies are valued using the foreign
                                      year ended December 31, 2004 comprise Swiss                                                                                                              the spot rates of a number of transactions. Mone-         exchange rates ruling at the balance sheet date,
                                      International Air Lines Ltd. and its subsidiaries        The consolidated financial statements are pre-                                                  tary assets and liabilities denominated in foreign        with exchange gains and losses regarding fair
                                      (together referred to as the “Group”) and the            pared and presented in Swiss Francs (CHF), the                                                  currencies at the balance sheet date are translated       value changes in shares recognised as part of the
                                      Group’s interest in associates and jointly controlled    Group’s functional currency. They are prepared on                                               at the foreign exchange rate ruling at that date.         adjustment to equity.
                                      entities. The consolidated financial statements          the historical cost basis except that the following                                             Foreign exchange differences arising from trans-
                                      were authorised for issue by the Board of Directors      assets and liabilities are stated at their fair value:
                                      on March 10, 2005 and are subject to approval by         derivative financial instruments and available-for-
                                      the shareholders’ meeting on May 19, 2005.               sale investments. Recognised assets and liabilities       Financial statements                  The Group’s foreign operations are classified as          Exchange differences arising from translation of
                                                                                               that are hedged are stated at fair value in respect       of foreign operations                 either foreign operations that are an integral part       foreign entities are recognised directly in equity.
                                      The consolidated financial statements have               of the risk being hedged.                                                                       to the Company’s operations or foreign entities.
                                      been prepared in accordance with International                                                                                                           Assets and liabilities of foreign entities, including     A foreign operation that forms an integral part of
                                      Financial Reporting Standards (IFRS).                                                                                                                    goodwill and fair value adjustments arising from          the Group’s operations carries on its business as
                                                                                                                                                                                               consolidation, are translated to Swiss Francs at          if it were an extension of the Group’s operations.
                                                                                                                                                                                               foreign exchange rates ruling at the balance sheet        Any exchange differences are recognised in accor-
Basis of consolidation                                                                                                                                                                         date. The revenues and expenses of foreign enti-          dance with the accounting policy for foreign cur-
                                                                                                                                                                                               ties are translated to Swiss Francs at average rates.     rency transactions and balances.
Subsidiaries                          Subsidiaries are those enterprises controlled by the     tain benefits from its activities. The financial state-
                                      Company. Control exists when the Company has the         ments of subsidiaries are included in the consoli-
                                      power, directly or indirectly, to govern the financial   dated financial statements from the date that con-                                              Foreign exchange rates used are as follows:
                                      and operating policies of an enterprise so as to ob-     trol commences until the date that control ceases.
                                                                                                                                                                                               Average rate*                                             Rate at year end
                                                                                                                                                                                               2004                         2003                         2004                        2003
Associates                            Associates are those enterprises in which the            commences until the date that significant influ-
                                      Company has significant influence, but no control,       ence ceases. When an associate makes losses,              USD 1                                 1.25                         1.35                         1.14                        1.24
                                      over the financial and operating policies. The con-      the Group’s share of losses is recognised until the       EUR 1                                 1.54                         1.52                         1.55                        1.56
                                      solidated financial statements include the Group’s       carrying amount of the associate is reduced to nil.       GBP 1                                 2.27                         2.21                         2.19                        2.21
                                      share of the total recognised profits and losses of      Recognition of further losses is discontinued             JPY 100                               1.15                         1.16                         1.11                        1.16
                                      associates on an equity accounted basis (equity          except to the extent that the Group has incurred an
                                      method), from the date that significant influence        obligation to cover such losses.                                                                *IATA accounting rates


Joint ventures                        A joint venture is an enterprise that the Group con-     exercise unilateral control. Such enterprises are         Segment reporting                     The Group’s business predominantly consists in            With respect to the reporting of financial per-
                                      trols jointly with one or more parties under a con-      accounted for using the equity method.                                                          providing air transport services, reflecting the          formance on a geographical basis, the Group
                                      tract whereby no party on its own has the ability to                                                                                                     primary source of the Group’s risks and returns.          manages its business on the basis of income by
                                                                                                                                                                                               Business activities included therein, such as             destination and not by income by regional area
                                                                                                                                                                                               charter and other services, are not considered to         or by specific geographical client segments. It is
Transactions eliminated               Intra-group balances and transactions, and any           in the enterprise, as an adjustment to the carrying                                             be separate business segments for the following           therefore not possible to produce a meaningful
on consolidation                      unrealised gains arising from intra-group transac-       amount of the investment. Unrealised losses                                                     reasons:                                                  segment result by geographical area.
                                      tions, are eliminated in preparing the consolidated      are eliminated in the same way as unrealised gains,
                                      financial statements. Unrealised gains arising from      unless there is evidence of impairment, giving rise                                             – Charter operations account for 3 % of total rev-        Accordingly, the Group operates in one primary
                                      transactions with associates and joint ventures          to additional write-offs.                                                                         enues only and, therefore, are not disclosed as a       business segment, air transport services, and
                                      are eliminated to the extent of the Group’s interest                                                                                                       stand-alone business segment.                           discloses secondary segment information by the
                                                                                                                                                                                               – Cargo, accounting for approximately 13 % of total       following geographical areas:
                                                                                                                                                                                                 revenue, is not considered to represent a busi-
                                                                                                                                                                                                 ness segment as the cargo operations are carried        – Switzerland
                                                                                                                                                                                                 out as an integral part and joint product of sched-     – Europe
                                                                                                                                                                                                 uled services. Accordingly, the Group does not          – Far and Middle East
                                                                                                                                                                                                 account for cargo on a full cost basis in its man-      – Americas
                                                                                                                                                                                                 agement information systems, but on a contri-           – Africa and Near East
                                                                                                                                                                                                 bution level only. It is therefore considered that no
                                                                                                                                                                                                 useful information to the reader of the consoli-
                                                                                                                                                                                                 dated financial statements would be provided on
                                                                                                                                                                                                 that basis.




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Swiss International Air Lines Group       Financial Report 2004                                                                                               Swiss International Air Lines Group   Financial Report 2004
Annual Report 2004                        Notes to the consolidated financial statements                                                                      Annual Report 2004                    Notes to the consolidated financial statements




Consolidated income statement                                                                                                                                 Consolidated balance sheet

Revenue recognition                       Revenue from flight operations is recognised when          are charged to cost of services. Tickets sold but        Cash and cash equivalents             Cash and cash equivalents comprise cash on hand,
                                          the transportation service is provided. Commission         not used are recognised as revenue on a system-                                                postal and bank accounts and short-term deposits
                                          costs owed to travel agencies are recognised at the        atic basis.                                                                                    with an original maturity of 90 days or less.
                                          same time as the revenue to which they relate and

                                                                                                                                                              Marketable securities                 Trading investments are investments that the Group        When the investments are sold, the cumulative
Aircraft maintenance costs                Routine maintenance costs are recognised as                aircraft are capitalised as a separate component of      and other investments                 principally holds for the purpose of short-term           gain or loss recognised in equity is transferred to
                                          incurred. Major maintenance and overhaul costs             the cost of the aircraft fleet and depreciated on an                                           profit taking. This category includes investments in      the income statement.
                                          relating to (finance-leased as well as owned)              systematic basis.                                                                              marketable debt and equity securities. Initial rec-
                                                                                                                                                                                                    ognition is at cost on settlement date. Subsequent        The available-for-sale investments are reviewed
                                                                                                                                                                                                    measurement is at fair value. Gains and losses aris-      at each balance sheet date to determine if there is
Operating lease payments                  Payments made under operating leases are gen-                                                                                                             ing from changes in the fair value are recognised in      evidence of impairment. If any indication of im-
                                          erally recognised in the income statement on a                                                                                                            the income statement.                                     pairment exists, the asset’s recoverable amount is
                                          straight-line basis over the term of the lease, unless                                                                                                                                                              estimated. Any impairment loss is recognised in
                                          the lease payment is related to contingencies.                                                                                                            Available-for-sale investments are investments that       the income statement except to the extent that it
                                                                                                                                                                                                    are held neither for trading nor to maturity. Avail-      reverses an upward revaluation previously recog-
                                                                                                                                                                                                    able-for-sale instruments include debt and equity         nised in equity. If the recoverable amount of an
Financial expenses and financial income   Financial income comprises interest income from            (excluding all fuel derivatives that are included as                                           investments. They are initially recognised at cost        impaired asset subsequently increases and the
                                          loans and debt securities, dividend income, foreign        adjustments to the fuel expenses) and losses on                                                on settlement date. Subsequent measurement is             increase can be linked to an event occurring after
                                          exchange gains, gains on derivatives that are not          disposals of investments.                                                                      at fair value with gains and losses recognised di-        the writedown, the impairment loss is reversed.
                                          accounted for as hedging instruments (excluding                                                                                                           rectly in equity, except for any impairment losses,
                                          all fuel derivatives that are included as adjustments      Interest income is recognised in the income state-                                             which are recognised in the income statement.
                                          to the fuel expenses) and gains on disposals of in-        ment using the effective interest method. Dividend
                                          vestments.                                                 income is recognised in the income statement on
                                                                                                     the date that the dividend is declared. The interest     Derivatives                           Derivatives are initially recognised at cost. Subse-      When a hedged anticipated transaction or firm
                                          Financial expenses consist of interest on financial        component of finance lease payments is recog-                                                  quent to initial recognition all derivatives are stated   commitment results in the recognition of an asset
                                          liabilities, foreign exchange losses, losses on deriva-    nised in the income statement using the effective                                              at fair value. Gains and losses on remeasurement          or liability, the cumulative gain or loss on the hedg-
                                          tives not accounted for as hedging instruments             interest method. No borrowing costs are capitalised.                                           of derivatives that qualify for hedge accounting are      ing instrument recognised in equity is removed
                                                                                                                                                                                                    recorded in equity; others are recognised in the in-      from equity and included in the initial measure-
                                                                                                                                                                                                    come statement.                                           ment of the asset or liability. Otherwise the cumu-
Income taxes                              Income tax on the profit or loss for the year com-         accounting nor taxable profit and differences re-                                                                                                        lative gain or loss recognised in equity is trans-
                                          prises current and deferred tax. Income tax is rec-        lating to investments in subsidiaries to the extent                                            Hedge of fair value of a recognised asset or liability:   ferred to the income statement at the same time
                                          ognised in the income statement except to the              that they will probably not reverse in the foresee-                                            Where a derivative financial instrument hedges the        that the hedged transaction affects net profit or
                                          extent that it relates to items recognised directly to     able future. The amount of deferred tax recognised                                             exposure to changes in the fair value of a recog-         loss, and is included in the same line item as the
                                          equity, in which case it is recognised in equity.          is based on the expected manner of realisation or                                              nised asset or liability, the hedged item is stated at    hedged transaction.
                                                                                                     settlement of the carrying amount of assets and                                                fair value in respect of the risk being hedged. Gains
                                          Current tax is the expected tax payable on the tax-        liabilities, using tax rates enacted or substantially                                          or losses on remeasurement of both the hedging            When a hedging instrument or hedge relationship
                                          able income for the year, using tax rates enacted          enacted at the balance sheet date.                                                             instrument and the hedged item are recognised in          is terminated but the hedged transaction is still
                                          or substantially enacted at the balance sheet date,                                                                                                       the income statement.                                     expected to occur, the cumulative gain or loss rec-
                                          and any adjustment to tax payable in respect of            A deferred tax asset is recognised only to the ex-                                                                                                       ognised in equity remains in equity and is recog-
                                          previous years.                                            tent that deferred tax liabilities exist and that it                                           Hedge of uncertain future cash flows: Where a de-         nised in accordance with the above policy. If the
                                                                                                     is probable that future taxable profits will be avail-                                         rivative financial instrument hedges the exposure         hedged transaction is no longer expected to occur,
                                          Deferred tax is recognised based on the balance            able against which the asset can be utilised. De-                                              to variability in future cash flows, the effective part   the cumulative gain or loss recognised in equity is
                                          sheet liability method, on temporary differences           ferred tax assets are reduced to the extent that it is                                         of any gain or loss on remeasurement of the hedg-         recognised immediately in the income statement.
                                          between the carrying amounts of assets and                 no longer probable that the related tax benefit will                                           ing instrument is recognised directly in the hedg-
                                          liabilities for financial reporting purposes and the       be realised.                                                                                   ing reserve as part of equity. The ineffective part of    Derivatives that do not qualify for hedge account-
                                          amounts used for taxation purposes. The following                                                                                                         any gain or loss is recognised immediately in the         ing, are stated at fair value. Unrealised gains
                                          temporary differences are not accounted for:               Additional income taxes that arise from the dis-                                               income statement .                                        and losses are recognised in the financial income
                                          goodwill not deductible for tax purposes, the initial      tribution of dividends are recognised when the                                                                                                           or expenses.
                                          recognition of assets or liabilities that affect neither   liability to pay the related dividend is incurred.




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Swiss International Air Lines Group     Financial Report 2004                                                                                                Swiss International Air Lines Group   Financial Report 2004
Annual Report 2004                      Notes to the consolidated financial statements                                                                       Annual Report 2004                    Notes to the consolidated financial statements




Loans and trade and other receivables   Loans and trade and other receivables are stated               Accounts receivable and payable are offset and        Leases                                The Group being the lessee: Leases of aircraft and        lives on a basis consistent with similar owned as-
                                        at their cost less allowance for doubtful debts.               the net amount is reported in the balance sheet                                             property, plant and equipment where the Group             sets. Rental income is recognised on a straight-line
                                        Allowances are made for specific known doubtful                when the Group has a legally enforceable right to                                           has substantially all the risks and rewards of owner-     basis over the lease term, unless the lease pay-
                                        trade and other receivables and for portfolios of              set off the recognised amounts and the trans-                                               ship of the leased asset are classified as finance        ments are related to contingencies, and is presen-
                                        trade receivables based on historical default rates.           actions are intended to be settled on a net basis.                                          leases. Assets under finance leases are capitalised       ted in other operating income.
                                                                                                                                                                                                   at the inception of the lease at the lower of the fair
                                                                                                                                                                                                   value of the leased asset and the present value of        Sale-and-leaseback transactions: If a sale-and-
Inventories                             Inventories include consumable spare parts and                 business, less estimated selling costs. Inventories                                         the minimum lease payments. Each lease payment            leaseback transaction results in a finance lease,
                                        supplies. Inventories are stated at the lower of cost          are accounted for on a weighted average basis.                                              is allocated between a repayment of the liability         any loss from the sale is recognised immediately in
                                        and net realisable value. Net realisable value is the                                                                                                      and finance charges so as to achieve a constant           the income statement and any profit from the sale
                                        estimated selling price in the ordinary course of                                                                                                          interest rate on the outstanding liability. Assets        is deferred and amortised over the lease period.
                                                                                                                                                                                                   held under finance leases are depreciated over the        The associated lease finance costs are recognised
                                                                                                                                                                                                   shorter of the useful lives of the asset and the lease    over the lease period, using the effective interest
Aircraft fleet                          The aircraft fleet includes aircraft, spare engines            Estimated useful lives of aircraft vary between 10                                          term.                                                     rate method so as to achieve a constant interest
                                        and rotables with a useful life of more than one year.         and 15 years. The estimated residual values vary                                                                                                      rate on the outstanding liability in each accounting
                                        It is stated at cost less accumulated depreciation             between 5 % and 20 % of original costs, depending                                           Leases that do not transfer substantially all the risks   period.
                                        and impairment losses. Subsequent expenditure is               upon the type of aircraft.                                                                  and rewards of ownership to the Group are classi-
                                        capitalised if it enhances the expected economic                                                                                                           fied as operating leases. Payments made under             If a sale-and-leaseback transaction results in an
                                        benefits from the asset.                                       Improvements to leased aircraft are depreciated                                             operating leases (net of any incentives received          operating lease, any profit or loss from the sale is
                                                                                                       over the term of the lease, over a maximum of                                               from the lessor) are generally charged to the in-         taken directly to the income statement if the trans-
                                        Owned aircraft and those held under finance leases             10 years.                                                                                   come statement on a straight-line basis over the          action is established at fair value. If the transaction
                                        are depreciated on a straight-line basis to their esti-                                                                                                    period of the lease.                                      is established below fair value, any loss that is com-
                                        mated residual value at the end of their expected              Spare engines and rotables are carried at cost and                                                                                                    pensated by future lease payments at below mar-
                                        useful lives. Part of the initial cost of aircraft is treat-   depreciated over 10 to 15 years.                                                            The Group being the lessor: The Group retains sub-        ket price is deferred and amortised over the length
                                        ed as the cost of major maintenance and overhaul                                                                                                           stantially all the risks and rewards of ownership         of the lease period; any other loss is recognised
                                        procedures and is depreciated over the related                                                                                                             of all assets it leases to third parties. Therefore the   immediately in the income statement. If the trans-
                                        service interval (typically 3 to 5 years). Subsequent                                                                                                      leased assets are included in the aircraft fleet or in    action is established above fair value, the gain
                                        costs of major maintenance and overhaul proce-                                                                                                             property, plant and equipment in the balance sheet.       arising from the transaction is deferred and amor-
                                        dures are capitalised when incurred and amortised                                                                                                          They are depreciated over their expected useful           tised over the lease period.
                                        over the related service interval.


Property, plant and equipment           Property, plant and equipment (exception: land)                The estimated useful lives are as follows:
                                        are stated at cost less accumulated depreciation
                                        and impairment losses. Subsequent expenditure is               – Buildings
                                        capitalised only when it increases the expected                  over the term of the leasehold land
                                        future economic benefits from the asset. All other               (maximum of 50 years)
                                        expenditure is recognised in the income statement              – Simulators
                                        as an expense as incurred.                                       10 years
                                                                                                       – Other equipment
                                        Depreciation is charged to the income statement                  3 to 6 years
                                        on a straight-line basis over the estimated useful
                                        lives of property, plant and equipment.




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Annual Report 2004                    Notes to the consolidated financial statements                                                                  Annual Report 2004                    Notes to the consolidated financial statements




Intangible assets                     Goodwill: Goodwill arising from an acquisition         value of the net identifiable assets acquired over       Unearned transportation revenue       Revenue from the sale of transportation docu-            Deferred unearned transportation revenue is re-
                                      represents the excess of the cost of the acquisition   the cost of acquisition. Negative goodwill is recog-                                           ments that have not yet been used, or the portion        leased to the income statement when the service is
                                      over the fair value of the net identifiable assets     nised in the income statement over the weighted                                                of the revenue attributable to the unused part of        provided or two years after the sale of the transport
                                      acquired. Goodwill is stated at cost less accumu-      average live of the depreciable and amortisable                                                a transport document sold, is deferred.                  document.
                                      lated amortisation and impairment losses. Good-        assets. The carrying amount of negative goodwill is
                                      will is amortised over its estimated useful life       deducted from the carrying amount of intangible
                                      (up to 20 years) using the straight-line method.       assets.                                                  Accrued expenses and prepaid income   Accrued expenses and prepaid income are related          expenses (overtime and vacation), to deferred
                                      IFRS 3 applied to acquisitions that were agreed                                                                                                       to flight operations (handling, landing, passenger       gains on sale-and-leaseback transactions and to
                                      on or after March 31, 2004 had no effects on           Software: Software acquired by the Group is stated                                             taxes, maintenance, insurance etc.), to personnel        general and administration costs.
                                      the consolidated financial statements.                 at cost less accumulated amortisation and impair-
                                                                                             ment losses. It is amortised linearly over 4 years.
                                      Negative goodwill: Negative goodwill arising from      The Group does not have any internally generated         Employee benefits                     The Group sponsors pension plans according to            the form of refunds or reductions in future contri-
                                      an acquisition represents the excess of the fair       intangible assets.                                                                             the national regulations of the countries in which it    butions. Actuarial gains and losses arising from
                                                                                                                                                                                            operates.                                                subsequent calculations are recognised to the ex-
                                                                                                                                                                                                                                                     tent that they exceed 10 % of the higher of the
Impairment                            The carrying amounts of the Group’s aircraft,          An impairment loss is reversed if there has been a                                             The significant pension plans in Switzerland qualify     defined benefit obligation and the fair value of the
                                      property, plant and equipment, intangible assets,      change in the estimates used to determine the                                                  as defined benefit plans under IAS 19. The respec-       plan assets. The amount exceeding this corridor
                                      investments in associates and other financial          recoverable amount. An impairment loss on good-                                                tive employee benefit costs are determined in ac-        is amortised over the average remaining working
                                      assets are reviewed at each balance sheet date to      will is only reversed if specific events have occurred                                         cordance with the Projected Unit Credit Method.          lives of the employees participating in the plan.
                                      determine whether there is any indication of im-       that reverse the effect of the event that originally                                           Actuarial calculations are conducted on an annual
                                      pairment. If any such indication exists, the asset’s   caused the impairment.                                                                         basis. Any excess of the defined benefit obligation      The significant foreign pension schemes are de-
                                      recoverable amount, being the greater of its net                                                                                                      over the fair value of plan assets is initially recog-   fined contribution plans. The pension costs
                                      selling price and its value in use, is estimated.                                                                                                     nised and presented under employee benefit obli-         recognised during a period for such plans equal
                                                                                                                                                                                            gations. A pension asset is recognised only to the       the contributions paid or due for that period.
                                      An impairment loss is recognised in the income                                                                                                        extent that it represents economic benefits in
                                      statement whenever the carrying amount of an
                                      asset or its cash-generating unit exceeds its re-
                                      coverable amount.                                                                                               Provisions                            A provision is recognised on the balance sheet           material, provisions are determined by discounting
                                                                                                                                                                                            when the Group has a legal or constructive obli-         the expected future cash flows at a pre-tax rate
                                                                                                                                                                                            gation as a result of a past event, and it is probable   that reflects current market assessments of the
Trade and other payables              Trade and other payables are stated at cost.                                                                                                          that an outflow of economic benefits will be             time value of money and, where appropriate, the
                                                                                                                                                                                            required to settle the obligation. If the effect is      risks specific to the liability.

Interest-bearing liabilities          Interest-bearing borrowings are recognised initially   difference between cost and redemption value
                                      at cost, less attributable transaction costs. Sub-     being recognised in the income statement over the        Share capital and employee            Ordinary shares with discretionary dividends are         including any attributable transaction cost, net
                                      sequent to initial recognition, interest-bearing       period of the borrowings on an effective interest        stock participation plans             classified as equity. Dividends on ordinary shares       of income tax, is presented as treasury shares and
                                      borrowings are stated at amortised cost with any       basis.                                                                                         are recognised in equity in the period in which          deducted from shareholders’ equity. Where such
                                                                                                                                                                                            they are declared.                                       shares are subsequently sold or reissued, any
                                                                                                                                                                                                                                                     consideration received is included in shareholders’
                                                                                                                                                                                            External costs directly attributable to the issuance     equity.
                                                                                                                                                                                            of new shares are presented net of the related tax,
                                                                                                                                                                                            as a deduction from the proceeds in equity.              Rewards in connection with lengths of service
                                                                                                                                                                                                                                                     and bonus plans in the form of bonus shares are
                                                                                                                                                                                            When the Company or its subsidiaries purchase            recognised as personnel expenses in the income
                                                                                                                                                                                            the Company’s own shares, the consideration paid,        statement.




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Annual Report 2004                              Notes to the consolidated financial statements                                                                Annual Report 2004                                  Notes to the consolidated financial statements




1. Segment reporting                                                                                                                                          Effect of acquisition and disposal

CHF million                                                                                                                                                                                                      The acquisitions and disposals had the following
                                                                               Far and                      Africa and                 Recon-                                                                    effect on the Group’s assets and liabilities:
                                             Switzerland       Europe       Middle East      Americas       Near East        Other     ciliation    Group
                                                                                                                                                              CHF million                                                     2004                2004              2003          2003
2004                                                                                                                                                                                                                          Acquisition         Disposal          Acquisition   Disposal

Net sales                                         1 286         1 075               449            478            188           43           0       3 519    Buyout of minorities                                                0                   0                1             0
Assets                                            2 434            44                25             25             22            0         573       3 123
Capital expenditures                                263             0                 0              0              0            0           0         263    Consideration paid/(received), satisfied in cash                    0                   0                1             0
Impairment                                          174             0                 0              0              0            0           0         174
                                                                                                                                                              Cash (acquired)/disposed of                                         0                   0                0             0
2003
                                                                                                                                                              Net cash outflow/(inflow)                                           0                   0                1             0
Net sales                                         1 376         1 322               474            524            263           48           0       4 007
Assets                                            3 285            47                30             30             30            0         452       3 874
Capital expenditures                                885             0                 1              4              0            0           0         890    CHF million                                                                                           2004          2003
Impairment                                          107             0                 0              0              0            0           0         107
                                                                                                                                                              3. Revenue from other operations

                                                The assets that are not allocated to the geogra-         All aircraft and the Group headquarters are allo-    Revenue from catering                                                                                    2             3
                                                phical segments are mainly fixed-term deposits           cated to Switzerland, although they are also used    Revenue from duty free and marketing                                                                     9             9
                                                with a term of up to 12 months, investments in           in favour of the other regions.                      Revenue from technical and ground services                                                              35            38
                                                associates, loans and other investments as well
                                                as deferred tax assets.                                                                                       Total revenue from other operations                                                                     46            50


2. Acquisitions, formations and disposals of subsidiaries – changes in the scope of consolidation                                                             4. Gain on disposal of fixed and intangible assets

Acquisitions and minorities                     No subsidiaries, associates or minority holdings                                                              Gain on disposal of aircraft                                                                             1             3
                                                were acquired in 2004.
                                                                                                                                                              Total gain on disposal of fixed and intangible assets                                                    1             3

Formations                                      No subsidiaries were founded in 2004.
                                                                                                                                                                                                                 The 2004 gain on asset disposals derived from
                                                                                                                                                                                                                 the insurance indemnity for a damaged owned
Disposals                                       The Group sold its 100 % shareholding in A.F.S.          maturely terminated in April 2004. With respect to                                                      spare Saab SF-2000 engine.
                                                Aviation Financial Services AG, Zurich to Dr. Georg      this, compensation was agreed consisting of the
                                                Wiederkehr in November 2004. The effects on the          return of 5 000 shares and operating equipment
                                                consolidated financial statements were marginal.         valued at CHF 0.4 million. The shareholding in
                                                                                                         Alpar AG was reduced accordingly from 23 % to
                                                The contractual agreement with associate Alpar           17 %, and is now presented in the balance sheet
                                                Flug- und Flugplatzgesellschaft AG, Berne was pre-       under investments.


Transformation of subsidiaries                  The former Express City Air Transport AG was             Service Line GmbH, Frankfurt was renamed
                                                renamed Swiss Aviation Software AG, Basel in             Mindpearl GmbH, Frankfurt. The company
                                                June 2004. The company is active from Switzer-           is in the process of liquidation. Its operations
                                                land in the development, production, distribution        have been assumed by Mindpearl AG, Kloten,
                                                and licensing of all types of software and asso-         Switzerland.
                                                ciated services, especially for the aviation industry.




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Annual Report 2004                                 Notes to the consolidated financial statements                                                            Annual Report 2004                               Notes to the consolidated financial statements




CHF million                                                                                            2004                        2003                      CHF million                                                                                            2004                         2003

5. Other operating income                                                                                                                                    7. Cost of services

Operating lease rentals – aircraft                                                                       13                          14                      Handling                                                                                               –378                         –441
Income from call centre activities                                                                       11                          11                      Landing                                                                                                –142                         –171
Commissions                                                                                              34                          41                      Passenger taxes                                                                                          –5                          –10
Finance lease income (release of deferred gains)                                                          9                          16                      Air traffic control                                                                                    –183                         –227
Other services and income                                                                                55                          34                      Cargo handling/trucking and commissions                                                                –147                         –169
                                                                                                                                                             Commissions for scheduled services                                                                     –163                         –224
Total other operating income                                                                            122                         116                      Codeshare costs                                                                                         –23                          –23
                                                                                                                                                             Royalties                                                                                               –16                          –15
                                                                                                                                                             Computer reservation systems costs                                                                      –80                          –90
                                                   As of December 31, 2004, eight Saab SF-2000s        Commissions derive mainly from tickets sold for       Other operating services                                                                                –33                          –31
                                                   were leased to Carpatair in Romania and             other airlines and from income generated by
                                                   Darwin Airline in Switzerland. Eight Saab SF-340    the Group’s Loyalty Gate Ltd. a subsidiary with       Total cost of services                                                                                –1 170                      –1 401
                                                   Cityliner aircraft were leased to Aerolitoral in    partners of the frequent flyer programme.
                                                   Mexico, Carpatair in Romania and Moldavian
                                                   Airlines in Moldavia. One Embraer RJ145 aircraft    Other services and income mainly comprises in-                                                         Some cost-of-services positions were reduced          The number of flights performed decreased sub-
                                                   was leased to Finncom in Finland.                   come from real estate rentals, information techno-                                                     through the downsizing of the aircraft fleet and      stantially in 2004, and air traffic control fees
                                                                                                       logy services and training, along with further                                                         due to successfull negotiations with suppliers.       showed a corresponding decline. Distribution costs
                                                   Income from call centre activities was generated    income including the CHF 29 million from British                                                       The decline in handling and landing fees was due      were further reduced by the abolition of commis-
                                                   through Mindpearl AG, a fully owned subsidiary.     Airways for the transfer of airport slots.                                                             to the reduction in passenger numbers. Passenger      sion payments (which was effected in some
                                                                                                                                                                                                              taxes for charter operations declined in line with    markets outside Switzerland in the course of 2004)
                                                                                                                                                                                                              the smaller number of charter flights operated.       and the increased use of online booking facilities.
6. Cost of materials

Fuel purchase                                                                                          –565                        –589                      8. Personnel expenses
Net gain (loss) on fuel derivatives                                                                      23                          41
Material and overhaul costs – aircraft                                                                 –331                        –481                      Wages and salaries                                                                                     –603                         –766
Inflight costs                                                                                         –146                        –229                      Social contributions                                                                                    –64                          –73
Other materials                                                                                          –1                          –4                      Pension expenses                                                                                        –50                          –50
                                                                                                                                                             Variable compensation                                                                                    –9                           –8
Total cost of materials                                                                               –1 020                     –1 262                      Other personnel expenses                                                                                –48                          –61

                                                                                                                                                             Total personnel expenses                                                                               –774                         –958
                                                   The significantly higher kerosene prices arising    but not when viewed in relation to the reduction in
                                                   from negative exogenous factors had a negative      total Group production (in available seat-kilometre
                                                   impact on the cost of fuel purchase during the      terms) and to the improvement in the fuel effi-                                                        Total (Group) employee numbers had been re-           equivalents at the end of 2004 (2003: 7 301). The
                                                   entire reporting period. Fuel purchase costs for    ciency of the aircraft fleet.                                                                          duced to 6 625 full-time positions by December 31,    reductions in personnel expenses are attributable
                                                   2004 are lower than for 2003 in absolute terms,                                                                                                            2004 (2003: 8 072). The Company (i.e. the airline     to the workforce downsizing effected in the course
                                                                                                                                                                                                              excluding subsidiaries) employed 5 971 full-time      of the year.


                                                                                                                                                             9. Loss on disposal of fixed and intangible assets

                                                                                                                                                                                                              The Group sold two owned Saab SF-2000 aircraft        of CHF 6 million. A net loss of CHF 17 million was
                                                                                                                                                                                                              to Eric Thun AB (Goldenair), Sweden and one           incurred through the return of four Embraer RJ145
                                                                                                                                                                                                              owned Saab SF-2000 to Carpatair, Romania in           aircraft to their lessor. This loss was posted against
                                                                                                                                                                                                              2004. These transactions generated a net loss         restructuring provisions.




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Annual Report 2004                            Notes to the consolidated financial statements                                                              Annual Report 2004                                        Notes to the consolidated financial statements




CHF million                                                                                         2004                       2003                       CHF million                                                                                                     2004                        2003

10. Other operating expenses                                                                                                                              12. Financial income

Operating lease expenses – aircraft                                                                 –102                        –198                      Foreign currency gain, net                                                                                        60                           54
Operating lease expenses – equipment                                                                  –1                          –2                      Interest income                                                                                                   10                           18
Property and liability insurance                                                                     –51                         –80
Property and energy costs                                                                             –9                         –11                      Total financial income                                                                                            70                          72
Rent of property                                                                                     –23                         –36
Travel and transportation costs                                                                      –23                         –40
External consultancy fees                                                                            –28                         –33                      13. Income taxes
Capital taxes                                                                                          0                          –6
Concession fees                                                                                       –1                          –1                      Income taxes shown in the income statement:
EDP and information service costs                                                                    –67                         –97                      Current tax expenses (–)/income (+)                                                                                –1                          –3
Telecommunication costs                                                                               –9                         –12                      Deferred tax expenses (–)/income (+)                                                                                0                           0
Marketing costs                                                                                      –31                         –42
Representation costs                                                                                  –4                         –10                      Total income taxes                                                                                                –1                           –3
Additions to allowance for doubtful debts                                                             –5                           3
Other                                                                                                 44                         –70
                                                                                                                                                          The components of income tax expenses are the following:
Total other operating expenses                                                                      –310                       –635                       Income taxes relating to the current period                                                                        –1                          –3
                                                                                                                                                          Income taxes relating to past periods, net                                                                          0                           0

                                              Expenses for aircraft on operating lease and for      The decline in EDP and information service costs is   Current income tax expenses                                                                                       –1                           –3
                                              property and liability insurance were reduced         due to renegotiations of licensing agreements
                                              through the downsizing of the aircraft fleet.         and reductions in software purchases as well as
                                                                                                    IT maintenance costs.                                 Deferred income tax expenses:
                                              In the year under review, CHF 6 million in taxes on                                                         Due to temporary differences                                                                                       –1                          –3
                                              capital were released, mainly due to a tax split      The “other” position includes the release of a        Recognition of tax loss carry-forwards                                                                              1                           3
                                              agreement beneficial to the Group that was nego-      CHF 68 million provision following the settlement
                                              tiated with the tax authorities in 2004.              of the Holco legal dispute.                           Deferred income tax expenses                                                                                        0                           0


                                                                                                                                                          Income tax expenses can be analysed as follows:
11. Financial expenses and impairment due to currency exchange losses                                                                                     Loss before tax                                                                                                 –138                        –683
    on prepayments made for cancelled aircraft orders                                                                                                     Income tax expenses at the average applicable rate of 21 %                                                        29                         143

Interest expenses on loans and mortgages                                                             –11                         –15                      Items that increase income tax expenses:
Interest expenses on finance leases                                                                  –44                         –34                      Tax-relevant expenses that are recognised in equity                                                                0                           0
                                                                                                                                                          Unrecognised tax loss carry-forwards                                                                             –30                        –138
Total interest expenses                                                                              –55                         –49                      Loss carry-forwards which will not be tax deductible                                                              –1                          –7

                                                                                                                                                          Items that reduce income tax expenses:
Other financial expenses                                                                              –9                          –4                      Other effects                                                                                                       1                          –1

Total financial expenses                                                                             –64                         –53                      Effective income taxes                                                                                            –1                           –3


Impairment due to currency exchange losses on prepayments                                                                                                 Deferred taxes credited directly in equity:
 made for cancelled aircraft orders                                                                  –23                           0                      Relating to net gain/loss recognised directly in equity                                                             0                           0


                                              In 2004 the Group cancelled the orders for three                                                                                                                      A deferred tax asset of CHF 3 million was not         ment. A respective amount of CHF 4 million of
                                              Airbus A340-300s. As per December 31, 2004 it                                                                                                                         recognised directly in equity on hedging losses       deferred tax assets was assigned to the income
                                              was foreseeable that the prepayments would be                                                                                                                         in 2004.                                              statement, based on the available tax loss carry-
                                              paid back. An impairment loss of CHF 23 million                                                                                                                                                                             forward, thereby setting off the deferred tax
                                              had to be recognised due to a weaker USD ex-                                                                                                                          Deferred tax liabilities of CHF 4 million, recorded   charge.
                                              change rate.                                                                                                                                                          in the equity, were released to the income state-




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Annual Report 2004                                 Notes to the consolidated financial statements                                                    Annual Report 2004                    Notes to the consolidated financial statements




CHF million                                                                                           2004                      2003

14. Cash and cash equivalents

Cash on hand, post, and on call at bank                                                                  87                     227
Fixed-term deposits with an original maturity of maximum 3 months                                       392                     274
Other                                                                                                     2                       2

Total cash and cash equivalents                                                                        481                      503


15. Derivative assets and liabilities

CHF million                                         Notional amount with                                                                             CHF million                           Notional amount with
                                                    remaining life of                               Fair values                                                                            remaining life of                                Fair values
                                                    less         3 months   more                    Cash flow     Fair-value                                                               less         3 months    more                    Cash flow     Fair-value
                                                    than         to         than                    hedging       hedging                                                                  than         to          than                    hedging       hedging
                                                    3 months 1 year         1 year      Total       instruments   instruments      Trading   Total                                         3 months 1 year          1 year      Total       instruments   instruments   Trading   Total

2004                                                                                                                                                 2003

Interest-rate instruments                                                                                                                            Interest-rate instruments
Asset                                                   0             0      50           50             0            0                5        5    Asset                                     0            0        60           60             0            0            8         8
Liability                                               0             0       0            0             0            0                0        0    Liability                                 0            0         0            0             0            0            0         0

Currency instruments                                                                                                                                 Currency instruments
Asset                                                  63            59        0         122             1            0                0        1    Asset                                    38            4          0          42             0            0            0         0
Liability                                              20            10        0          30             2            0                0        2    Liability                                16            0          0          16             1            0            0         1

Cross-currency swaps                                                                                                                                 Cross-currency swaps
Asset                                                   0             0        0           0             0            0                0        0    Asset                                     0            0          0           0             0            0            0         0
Liability                                              28            95        0         123             2            0                0        2    Liability                                 0            0          0           0             0            0            0         0

Fuel instruments                                                                                                                                     Fuel instruments
Asset                                                  14            43        0          57             5            0                0        5    Asset                                    34         100         20          154            42            0            2        44
Liability                                              77            27        0         104            18            0                0       18    Liability                                 8          25          0           33            17            0            2        19

Equity derivatives                                                                                                                                   Equity derivatives
Asset                                                   0             0        0           0             0            0                0        0    Asset                                     0            0          0           0             0            0            0         0
Liability                                               0             0        0           0             0            0                0        0    Liability                                 0            0          0           0             0            0            0         0

Total derivative assets                                77           102      50          229             6            0                5       11    Total derivative assets                  72         104         80          256            42            0          10         52

Total derivative liabilities                         125            132        0         257            22            0                0       22    Total derivative liabilities             24          25           0          49            18            0            2        20
see also Note 31                                                                                                                                     see also Note 31




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CHF million                                                                                       2004                        2003                     19. Aircraft fleet

16. Trade receivables                                                                                                                                  CHF million                                                          Improve-          Spare                                 Accrued              Advance
                                                                                                                                                                                                                            ments to          engines &         Leased              costs for            payments
Trade receivables due from third parties                                                           328                          457                                                          Owned      Leased              leased            aircraft          spare               improvements         on aircraft
Allowance for doubtful receivables                                                                 –95                          –95                                                          aircraft   aircraft            aircraft          spares            engines             to aircraft          fleet           Total

Total trade receivables                                                                            233                         362                     Cost

                                                                                                                                                       Balance at January 1, 2004               496          2 517             33               104                 30                    35                155          3 370
                                           Trade receivables were reduced by CHF 129 million                                                           Additions                                  3          225 1              0                 9                  0                    19                  0            256
                                           in the reporting year due to the reduction of the                                                           Disposals                                –51         –173 2            –20               –11                  0                     0                  0          –255
                                           size of the Group and faster processing of interline                                                        Transfers and sale-and-leaseback
                                           claims.                                                                                                      transactions                              0             –9               0                 0                0                      0                  –3           –12
                                                                                                                                                       Effect of changes in exchange rates        0              4               0                 0                0                      0                 –27           –23
                                                                                                                                                       Reclassification                         205            –87               0                30              –30                    –52                 –66             0
17. Other receivables
                                                                                                                                                       Balance at December 31, 2004             653         2 477              13               132                  0                     2                  59         3 336
Other receivables due from third parties                                                            12                          153
Recoverable tax (excluding income tax)                                                               9                           10
                                                                                                                                                       Accumulated depreciation and impairment losses
Total other receivables                                                                             21                         163
                                                                                                                                                       Balance at January 1, 2004               317            679              27                80                20                     0                   0         1 123
                                                                                                                                                       Depreciation
                                           Other receivables due from third parties were          (especially for the maintenance of the aircraft       charge for the year                      32            228              4                10                  0                     0                   0           274
                                           reduced by CHF 142 million mainly due to               fleet) included in this position were also reduced   Impairment losses                         97             50              0                 0                  0                     0                   7           154
                                           settlement of the Holco legal case (see Note 30).      through contract renegotiations.                     Disposals                                –31           –792            –21               –11                  0                     0                   0          –142
                                           The advance payments to business partners                                                                   Transfers and sale-and-leaseback
                                                                                                                                                        transactions                              0             0                0                 0                0                      0                   0              0
                                                                                                                                                       Reclassification                         112          –112                0                20              –20                      0                   0              0
18. Inventories
                                                                                                                                                       Balance at December 31, 2004             527           766              10                 99                 0                     0                   7         1 409
Catering materials                                                                                   3                            4
Consumable spare parts                                                                              38                           42
Other materials                                                                                      2                            1                    Carrying amount
Net realisation value allowance                                                                    –14                          –14
                                                                                                                                                       At December 31, 2003                     179         1 838                6                24                10                    35                155          2 247
Total inventories                                                                                   29                           33
                                                                                                                                                       At December 31, 2004                     126         1 711                3                33                 0                     2                  52         1 927
                                                                                                                                                                                                        1   thereof not cash-effective CHF 168 million (financed by lessor)
                                                                                                                                                                                                        2   not cash-effective (reversal of finance lease contracts)


                                                                                                                                                                                                        An impairment loss of CHF 154 million had to                          repurchase guarantees in 2005 and 2006. All
                                                                                                                                                                                                        be recognised in respect of the aircraft fleet. The                   aircraft are traded in USD. Part of the impairment
                                                                                                                                                                                                        impairment, which is for part of the fleet, was                       loss was based on the weakening of the USD over
                                                                                                                                                                                                        based on negative results from point-to-point                         the past few years.
                                                                                                                                                                                                        traffic not contributing to the long-haul network.
                                                                                                                                                                                                        The impairment was made on the estimated net                          The results for 2004 include any impairments
                                                                                                                                                                                                        realisable value of the aircraft fleet, based on                      required in relation to the corporate restructuring
                                                                                                                                                                                                        market studies and comparable transactions. The                       communicated in January 2005 as far as they
                                                                                                                                                                                                        supplementary depreciation for a further part of                      could be estimated. With associated negotiations
                                                                                                                                                                                                        the aircraft fleet is based on the values established                 still under way, the precise extent of such
                                                                                                                                                                                                        as a result of the planned use of manufacturers’                      impairments is currently impossible to determine.




96                                                                                                                                                                                                                                                                                                                               97
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Annual Report 2004                               Notes to the consolidated financial statements                                                               Annual Report 2004                               Notes to the consolidated financial statements




Fleet inventory at December 31, 2004                                                                                                                          20. Property, plant and equipment

                                                                  On                On                                   Total                                CHF million                                                Property          Property              Owned
                                 Seating                          finance           operating         Leased             not               Total                                                                         and               under                 other               Other equipment
                                capacity         Owned            lease             lease             out                operated          operated                                                                      plant             construction          equipment           on finance lease          Total

Saab SF-340B                        33             10               0                   0               –8                  –2                 0              Cost
Saab SF-2000                        50             15               5                   0               –8                  –3                 9
Embraer RJ145                       49              0               9                   4               –1                  –1                11              Balance at January 1, 2004                                   272                   1                   110                    41                  424
Avro RJ85                           82              4               0                   0                0                   0                 4              Additions                                                      1                   1                     1                     0                    3
Avro RJ100                          97              4              11                   0                0                   0                15              Disposals                                                     –3                  –2                   –10                     0                  –15
Airbus A319                    110–126              0               4                   3                0                   0                 7              Reclassification                                               0                   0                    36                   –36                    0
Airbus A320                    134–150              0               9                   5                0                   0                14
Airbus A321                    170–186              0               2                   2                0                   0                 4              Balance at December 31, 2004                                270                    0                   137                     5                  412
Airbus A330-200                196–230              0               2                   7                0                   0                 9
Airbus A340-300                    228              0               9                   0                0                   0                 9
Boeing MD-11                       241              0               0                   1                0                  –1                 0              Accumulated depreciation and impairment losses

Total                                 –            33              51                 22              –17                   –7                82              Balance at January 1, 2004                                   112                   0                    45                    21                  178
                                                                                                                                                              Depreciation charge for the year                              12                   0                    17                     2                   31
                                                                                                                                                              Impairment losses                                             11                   0                     9                     0                   20
                                                 The fleet inventory of the Group comprises 82 air-   All other aircraft that are not operated by the Group   Disposals                                                      0                   0                   –10                     0                  –10
                                                 craft including two Saab SF-2000s operated by its    or are currently subleased are offered for sale or      Reclassification                                               0                   0                    19                   –19                    0
                                                 Europe Continental Airways S.A. subsidiary. Two      lease to third parties.
                                                 of the fleet’s Airbus A320s are operated by Swiss                                                            Balance at December 31, 2004                                135                    0                   80                      4                  219
                                                 Sun on charter services. The commercial fleet
                                                 used by SWISS for its scheduled services thus
                                                 comprised 80 aircraft as of December 31, 2004.                                                               Carrying amount

                                                                                                                                                              At December 31, 2003                                         160                   1                    65                    20                  246
Average fleet age and aircraft on order at December 31, 2004
                                                                                                                                                              At December 31, 2004                                        135                    0                   57                      1                  193
                                                                  Average age                         Firm orders                          Options
                                                                  (years)                             (number)                             (number)
                                                                                                                                                                                                               Impairments of CHF 11 million in respect of build-    The fire insurance value of property and plant
Saab SF-340B                                                      14.7                                   0                                       0                                                             ings and CHF 9 million in respect of an aircraft      amounts to CHF 241 million (2003: CHF 173 mil-
Saab SF-2000                                                       8.2                                   0                                       0                                                             simulator were made in 2004. The impairment on        lion) as of December 31, 2004. The fire insurance
Embraer RJ145                                                      3.2                                   0                                      15                                                             the simulator is based on reduced training needs.     value of other operating equipment totalled
Avro RJ85                                                         11.6                                   0                                       0                                                             The correction was based on current fair value. The   CHF 94 million (2003: CHF 116 million) at the
Avro RJ100                                                         8.0                                   0                                       0                                                             impairment on buildings was carried out to the        same date.
Airbus A319                                                        7.6                                   0                                       0                                                             estimated net realisable value and was based on
Airbus A320                                                        6.6                                   0                                       0                                                             infrastructure parts currently unused.                With respect to capital commitments and pledged
Airbus A321                                                        7.1                                   0                                       0                                                                                                                   and restricted assets, reference is made to Notes
Airbus A330-200                                                    5.3                                   0                                       0                                                                                                                   34 and 36.
Airbus A340-300                                                    1.1                                   3                                       6
Boeing MD-11                                                      13.6                                   0                                       0
Embraer RJ170                                                      0.0                                  15                                      10
Embraer RJ195                                                      0.0                                  15                                      10
Embraer RJ190/195                                                  0.0                                   0                                       0

Total operated fleet                                               6.1                                  33                                     41

Total commercial SWISS fleet
 (excluding Europe Continental Airways S.A.)                       6.0

Total operated and non-operated fleet                              7.2                                    –                                        –


                                                 The fire insurance value of aircraft owned and       With respect to capital commitments and pledged
                                                 operated on finance leases amounted to CHF 2 955     and restricted assets, reference is made to Notes
                                                 million as of December 31, 2004, compared to         34 and 36.
                                                 CHF 3 018 million as of December 31, 2003.

98                                                                                                                                                                                                                                                                                                                     99
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Annual Report 2004                               Notes to the consolidated financial statements                      Annual Report 2004                                   Notes to the consolidated financial statements




21. Intangible assets                                                                                                CHF million                                                                                                 2004                        2003

CHF million                                                             Negative                  Software   Total   22. Investments in associates
                                                                        goodwill
                                                                                                                     Balance at January 1, 2004                                                                                      6                           8
Cost                                                                                                                 Share of results of associates                                                                                  0                           1
                                                                                                                     Reclassification of available-for-sale investments                                                             –1                           0
Balance at January 1, 2004                                                –10                        50       40     Dividends                                                                                                       0                          –3
Additions                                                                   0                         4        4
Disposals                                                                   0                        –6       –6     Balance at December 31, 2004                                                                                    5                           6
Change in scope of consolidation                                            0                         0        0

Balance at December 31, 2004                                              –10                        48       38     Swiss Aviation Training Ltd.:                        The Group has a 50 % interest in a joint venture       The Group’s share in the assets and liabilites,
                                                                                                                                                                          with General Electric Capital Aviation Training        revenues and expenses of the joint venture are
                                                                                                                                                                          (GECAT), whose principal activity is the training      as follows:
Accumulated amortisation and impairment losses                                                                                                                            of pilots, cabin crews and technicians. This invest-
                                                                                                                                                                          ment is accounted for using the equity method.
Balance at January 1, 2004                                                 –6                        27       21
Amortisation charge for the year                                           –4                         9        5     Current assets                                                                                                10                            7
Disposals                                                                   0                        –6       –6     Non-current assets                                                                                             3                            4
Change in scope of consolidation                                            0                         0        0     Current liabilities                                                                                            8                            7
                                                                                                                     Non-current liabilities                                                                                        0                            0
Balance at December 31, 2004                                              –10                        30       20
                                                                                                                     Net assets                                                                                                      5                           4

Carrying amount                                                                                                      Income                                                                                                        19                          20
                                                                                                                     Expenses                                                                                                      19                          19
At December 31, 2003                                                       –4                        23       19

At December 31, 2004                                                        0                        18       18     Alpar Flug- und Flugplatzgesellschaft:               The reclassification of CHF 1 million of available-
                                                                                                                                                                          for-sale investments concerns the reduction of
                                                                                                                                                                          the investment in Alpar Flug- und Flugplatzgesell-
                                             The fire insurance value of software amounted                                                                                schaft AG, Berne (see Note 2).
                                             to CHF 22 million as of December 31, 2004
                                             (2003: CHF 26 million).




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Annual Report 2004                     Notes to the consolidated financial statements                                                               Annual Report 2004                              Notes to the consolidated financial statements




CHF million                                                                                   2004                        2003                      24. Deferred tax assets and liabilities

23. Loans and other investments                                                                                                                                                                     Deferred tax assets and liabilities are attributable
                                                                                                                                                                                                    to the following items:
Loans to third parties                                                                          46                          65
Prepaid rent                                                                                     9                          10                      CHF million                                              Assets                          Liabilities          Net
Cash deposits                                                                                  114                         133                                                                               2004              2003            2004        2003   2004   2003
Equity securities available for sale                                                             2                           0
                                                                                                                                                    Property, plant and equipment                                1                 1               0          0      1      1
Total loans and other investments                                                              171                         208                      Investments in associates                                    0                 0              –1          0     –1      0
                                                                                                                                                    Loans and other investments                                  0                 0               0          0      0      0
                                                                                                                                                    Accrued expenses and prepaid income                          0                 0               0         –4      0     –4
                                       Loans to third parties mainly consist of collaterals   Cash deposits relate mainly to the maintenance        Employee benefit obligations                                 2                 4               0          0      2      4
                                       placed in connection with Avro RJ100, Embraer          of aircraft held under operating leases and to cash   Provisions                                                   0                 0             –18        –16    –18    –16
                                       RJ145 and Saab SF-2000 finance leases.                 fuel deposits.                                        Interest-bearing liabilities                                 0                 0               0          0      0      0
                                                                                                                                                    Tax value of loss carry-forwards                            17                16               0          0     17     16

                                                                                                                                                    Tax assets/(liabilities)                                    20                21            –19        –20      1      1

                                                                                                                                                    Set off of tax liabilities                                 –19               –20              19        20       0     0

                                                                                                                                                    Net tax assets/(liabilities)                                 1                 1               0         0      1      1




                                                                                                                                                                                                    The Group has the following unrecognised tax loss
                                                                                                                                                                                                    carry-forwards at its disposal:

                                                                                                                                                    CHF million                                                                                            2004   2003

                                                                                                                                                    Tax losses
                                                                                                                                                    Expiry: 2007                                                                                            24      24
                                                                                                                                                             2008                                                                                          305     305
                                                                                                                                                             2009                                                                                          971     971
                                                                                                                                                             2010                                                                                          670     670
                                                                                                                                                             2011                                                                                          145       0

                                                                                                                                                    Total unrecognised deferred tax assets on above-mentioned tax loss carry-forwards                      428    398


                                                                                                                                                                                                    Deferred tax assets have not been recognised in
                                                                                                                                                                                                    respect of these items.


                                                                                                                                                    25. Trade payables

                                                                                                                                                    Trade payables
                                                                                                                                                    – due to associates                                                                                      0       1
                                                                                                                                                    – due to third parties                                                                                 245     276

                                                                                                                                                    Total trade payables                                                                                   245    277




102                                                                                                                                                                                                                                                                             103
Swiss International Air Lines Group                Financial Report 2004                                             Swiss International Air Lines Group   Financial Report 2004
Annual Report 2004                                 Notes to the consolidated financial statements                    Annual Report 2004                    Notes to the consolidated financial statements




CHF million                                                                                            2004   2003   Terms and debt repayment schedule

26. Interest-bearing liabilities                                                                                     CHF million                                 Total                      1 year or less                   1–5 years                     more than 5 years

                                                   This note provides information about the contrac-                 Loans
                                                   tual terms of the Group’s interest-bearing loans
                                                   and borrowings:                                                   USD fixed at 5.55 %                            75                             8                              37                                 30
                                                                                                                     CHF variable at 4.91 %1                        58                            43                              15                                  0
Current interest-bearing liabilities
Current portion of mortgage loans                                                                       19     26    Total loans                                  133                             51                             52                                 30
Current portion of finance lease liabilities                                                           174    153
Current portion of loans from third parties                                                             51    107
                                                                                                                     Mortgage loans
Total current interest-bearing liabilities                                                             244    286
                                                                                                                     CHF fixed at 3.25 %                            19                            19                               0                                  0
                                                                                                                     CHF variable at 5.23 %2                        61                             0                              61                                  0
Non-current interest-bearing liabilities
Non-current portion of mortgage loans                                                                   61      0    Total mortgage loans                           80                            19                             61                                   0
Non-current portion of finance lease liabilities                                                       688    838
Non-current portion of loans from third parties                                                         82     82    Total                                        213                             70                           113                                  30

Total non-current interest-bearing liabilities                                                         831    920
                                                                                                                                                           The loans and credit facilities as of December 31,
                                                                                                                                                           2004 are secured by pledges of certain assets
                                                                                                                                                           (see Note 36).

                                                                                                                                                           1 This item includes the CHF 50 million credit facility concluded between the Group and Barclays Bank Plc on March 12, 2004

                                                                                                                                                            and the CHF 15 million credit facility concluded between the Group and Flughafen Zürich AG on November 18, 2004.
                                                                                                                                                            Security on the Barclays Bank Plc credit amount is provided by a guarantee from British Airways Plc. CHF 7 million were
                                                                                                                                                            repaid to Barclays Bank Plc in November 2004. The credit agreement has been concluded for three years.
                                                                                                                                                            On December 31, 2004 part of the Flughafen Zürich AG credit amount was secured by pledged assets. The agreement has
                                                                                                                                                            been concluded for a three-year period.
                                                                                                                                                            Both loans are subject to interest at market rates.

                                                                                                                                                           2 The Group closed a CHF 325 million secured credit facility with a syndicate of international banks comprising the Halifax Bank

                                                                                                                                                            of Scotland, Barclays, Credit Suisse, UBS and the Zurich Cantonal Bank in October 2004. Up to CHF 181 million of the total
                                                                                                                                                            amount have been directly available; the remaining CHF 144 million are serving initially as security on obligations currently
                                                                                                                                                            held by the Group.
                                                                                                                                                            Once these obligations, which arise from certain aircraft lease agreements, have been met, the amount available to the
                                                                                                                                                            Group within the overall credit facility will be gradually increased, by approximately CHF 106 million (with the precise amount
                                                                                                                                                            depending on exchange rates) in 2005 and to the full amount in 2006.
                                                                                                                                                            The liquidity available varies depending on the exchange rates of the USD and the EUR against the CHF, the valuation
                                                                                                                                                            and use of the underlying securities and the already-utilised credit amounts. The Group had access to additional liquidity
                                                                                                                                                            of CHF 89 million under the credit facility on December 31, 2004.
                                                                                                                                                            The credit agreement has been concluded for a three-year period. The agreed interest rate is variable.
                                                                                                                                                            The Group has simultaneously closed a EUR 68 million letter-of-credit facility with Barclays and Halifax Bank of Scotland.
                                                                                                                                                            The letters of credit are issued to provide credit support for contingent liabilities of the Group arising from aircraft lease
                                                                                                                                                            agreements, permitting the release of aircraft collaterals pledged under the CHF 325 million facility.
                                                                                                                                                            These financing agreements are contingent on compliance with certain financial and operational covenants.
                                                                                                                                                            As of December 31, 2004, the Group was in compliance with all the applicable covenants.




104                                                                                                                                                                                                                                                                                      105
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Annual Report 2004                                     Notes to the consolidated financial statements                                                                  Annual Report 2004                                 Notes to the consolidated financial statements




Finance lease liabilities                                                                                                                                              CHF million                                                                                                 2004                          2003

                                                       The total minimum lease payments as of                                                                          27. Unearned transportation revenue
                                                       December 31, 2004 and their present value at
                                                       that date are as follows (with variable lease                                                                   Unearned transportation revenue                                                                              385                           519
                                                       payments extrapolated on the basis of the last
                                                       applicable interest rate):                                                                                      Total unearned transportation revenue                                                                        385                           519

                                      Total                                         Total                                          Present value of
                                      minimum                                       Interest                                       total minimum                                                                          In 2004 transport documents of CHF 127 million           The passenger taxes included in unearned trans-
                                      lease payments                                payments                                       lease payments                                                                         (2003: CHF 106 million) were recognised in the           portation revenue were re-estimated in 2004.
                                                                                                                                                                                                                          revenue from scheduled services.                         As a result, CHF 54 million were recognised
CHF million                           2004                 2003                     2004                 2003                      2004                  2003                                                                                                                      in the revenue from scheduled services as of
                                                                                                                                                                                                                                                                                   December 31, 2004.
Due within
Less than 1 year                       220                   194                       46                    41                     174                    153
Between 1 and 5 years                  413                   527                      163                   162                     250                    365         28. Employee benefit obligations
More than 5 years                      563                   609                      125                   136                     438                    473
                                                                                                                                                                       Present value of funded obligations                                                                         1 665                        1 557
Total finance                                                                                                                                                          Fair value of plan assets                                                                                  –1 639                       –1 363
 lease liabilities                    1 196               1 330                      334                    339                     862                    991
                                                                                                                                                                       Present value of net obligations (funded status)                                                              26                           194
                                                       The total of the leased assets to be allocated to      generally only be exercised five years after incep-
                                                       the Group’s economic ownership amounts to              tion of the agreements. Early termination will, how-     Unrecognised cumulative actuarial losses                                                                     –15                          –175
                                                       CHF 1 712 million (2003: CHF 1 868 million), of        ever, result in additional costs. Two Airbus A340-
                                                       which CHF 1 711 million (2003: CHF 1 838 million)      300s were formally acquired via finance lease con-       Net liability recognised for defined-benefit obligations                                                      11                            19
                                                       relate to aircraft.                                    tracts in 2004. Each finance lease has a term of
                                                                                                              twelve years starting on the date of delivery and        Pension liabilities                                The consolidated balance sheet as of Decem-              for the first time. The fair value of plan assets also
                                                       The Group has concluded finance leases for 51 air-     contains a termination possibility after eight years                                                        ber 31, 2004 includes pension liabilities of CHF 11      increased as a result of the 8.10 % return achieved
                                                       craft, with lease terms ranging between one and        at the earliest, in a few cases after five years.                                                           million (2003: CHF 19 million) relating solely to the    for the previous year, which was included in the
                                                       twelve years. All the arrangements contain pur-        Both the A340-300s were financed by the aircraft                                                            Company’s Swiss pension schemes. The funded              2004 accounts. Finally, liabilities were adjusted to
                                                       chase rights and some of the arrangements con-         manufacturer at a maximum of 80 %. For one                                                                  status of these schemes, calculated in accordance        what were expected to be lower salary increases.
                                                       tain early termination rights. These options can       A340-300 an additional finance partner is involved.                                                         with IAS 19, shows a net obligation in the amount of
                                                                                                                                                                                                                          CHF 26 million as of that date (2003: CHF 194 mil-       The actuarial calculation of the funded status and
                                                                                                                                                                                                                          lion). The funds expected to accrue as a result          the pension liabilities mentioned above are based
                                                       The Group’s aircraft holdings under                                                                                                                                of the partial liquidation of the General Pension        on management’s best estimate.
                                                       finance lease can be specified as follows as                                                                                                                       Scheme of the Swissair Group (GPS) were included
                                                       of December 31, 2004:

CHF million                                                                                                   2004                         2003                        Plan assets

Carrying amount of leased aircraft fully prepaid                                                               392                           433                                                                           The plan assets do not include any ordinary shares
Carrying amount of other leased aircraft                                                                     1 319                         1 405                                                                           issued by the Company or any property occupied
                                                                                                                                                                                                                           by the Group.
Total carrying amount                                                                                        1 711                        1 838
                                                                                                                                                                       Movements in the net liability recognised in the balance sheet

                                                       Interest expenses amount to CHF 44 million             Lease payments are denominated in USD, EUR,              Net liability at January 1                                                                                    19                            42
                                                       for 2004, compared to CHF 34 million for 2003.         JPY and CHF. Interest payments are based on both         Net periodic pension costs                                                                                    43                            33
                                                       Depreciation on aircraft under finance lease           fixed and floating market interest rates. For further    Employer contributions                                                                                       –51                           –56
                                                       amount to CHF 278 million for 2004, of which           details on interest rates and foreign currencies re-
                                                       CHF 50 million are impairment losses. Deprecia-        ference is made to Note 31.                              Net liability at December 31                                                                                  11                            19
                                                       tion amounted to CHF 214 million in 2003.
                                                                                                              The finance lease liabilities are subject to a variety
                                                                                                              of terms and conditions including adequate insur-
                                                                                                              ance, maintenance and registration.




106                                                                                                                                                                                                                                                                                                                                  107
Swiss International Air Lines Group              Financial Report 2004                                                                                         Swiss International Air Lines Group          Financial Report 2004
Annual Report 2004                               Notes to the consolidated financial statements                                                                Annual Report 2004                           Notes to the consolidated financial statements




CHF million                                                                                              2004                        2003                      30. Pending legal claims

Expense recognised in the income statement                                                                                                                                                                  The Group is party to a number of official pro-         – In addition, the Group may be confronted with
                                                                                                                                                                                                            ceedings and civil lawsuits. Of particular note           further claims that have not yet materialised in
Current service costs                                                                                      94                         110                                                                   are the following major legal cases, in which             connection with employment law, branding
Past service costs                                                                                          0                           0                                                                   the Group features as defendant:                          issues and other matters relating to the expan-
Interest costs                                                                                             56                          52                                                                                                                             sion of the former Crossair into SWISS.
Expected return on plan assets                                                                            –69                         –60                                                                   – The French fiscal authorities are demanding the
Curtailment gain                                                                                            0                         –22                                                                     Group to pay French taxes (“taxe professionnelle”     – Compensatory damages claims arising from the
Effect of settlement                                                                                        0                          –7                                                                     and “impôt sur les sociétés”). SWISS, maintain-         accident of November 24, 2001 are currently
Amortisation of actuarial losses                                                                            0                           4                                                                     ing that the Company is domiciled in the Swiss          being processed or have already been settled.
                                                                                                                                                                                                              sector of EuroAirport Basel-Mulhouse-Freiburg,          The Group expects all such claims to be covered
Periodic pension costs                                                                                     81                          77                                                                     and is therefore subject to Swiss taxes only, has       by existing insurance policies.
                                                                                                                                                                                                              contested these demands.
                                                                                                                                                                                                                                                                    – Atraxis Belgium has filed a lawsuit against the
Employee contributions                                                                                    –38                         –44                                                                   – The legal disputes with Société Holco and Société       Group at the commercial court in Belgium for the
                                                                                                                                                                                                              d’exploitation AOM Air Liberté were settled with-       alleged prior termination of an IT contract. The
Net periodic pension costs of defined-benefit plans                                                        43                          33                                                                     out any acknowledgement of any legal obligation         case is pending.
                                                                                                                                                                                                              on SWISS’s part. Legal proceedings are still
                                                                                                                                                                                                              pending in Basel, where various companies of the      The Group has created provisions totalling
Costs of defined-contribution plans                                                                            7                       17                                                                     SAirGroup are contesting any right of recourse to     CHF 27 million for possible risks arising from the
                                                                                                                                                                                                              them on SWISS’s part.                                 above-mentioned lawsuits. The Management
Total pension expenses recognised in the income statement                                                  50                          50                                                                                                                           Board and the Board of Directors believe, on the
                                                                                                                                                                                                            – Claims have been lodged in various countries by       basis of their current assessment and the advice
                                                                                                                                                                                                              former employees of the SAirGroup. The plaintiffs     of their legal counsels, that any and all claims
Principal actuarial assumptions (weighted average):                                                         %                           %                                                                     are demanding, inter alia, the Group’s accep-         arising from pending legal cases, together with
                                                                                                                                                                                                              tance of their employment under the same terms        the costs of the legal action required, are ade-
Discount rate                                                                                            3.50                        3.50                                                                     and conditions as those which they previously         quately covered by the existing provisions.
Expected return on plan assets                                                                           4.50                        4.50                                                                     enjoyed with the SAirGroup. Claims are currently
Future salary increases                                                                                  1.56                        1.82                                                                     pending in Switzerland and France. The Group
Future pension increases                                                                                 0.50                        0.36                                                                     contests all such claims.
Actual return on plan assets                                                                             3.62                        8.10

                                                                                                                                                               31. Risk management and hedging activities
29. Provisions
                                                                                                                                                                                                            Exposure to fuel prices, currency and interest rate     Derivative financial instruments are primarily used
CHF million                                                                                                              Swiss TravelClub                                                                   risk and also credit and liquidity risk arises in the   to reduce exposure to fluctuations in fuel prices,
                                                       Pending legal         Aircraft                                    frequent flyer                                                                     normal course of the Group’s business. The Group        foreign exchange rates and interest rates in line with
                                                       claims                maintenance            Restructuring        programme              Total                                                       has established formal risk management policies         the Group’s documented risk management policies
                                                                                                                                                                                                            and guidelines that are approved by senior manage-      and strategy. While these derivatives are subject
Balance at January 1, 2004                                 133                   138                      74                    61                406                                                       ment to manage such risks.                              to the risk of market rates changing subsequent
Provisions made during the year                              1                    49                       0                    28                 78                                                                                                               to acquisition, such changes are generally offset
Provisions used during the year                            –33                   –75                     –58                   –24               –190                                                       When deemed appropriate, risk exposures are             by opposite effects on the items being hedged.
Provisions reversed during the year                        –74                    –3                      –1                   –12                –90                                                       reduced by the use of derivatives.

Balance at December 31, 2004                                27                   109                     15                     53               204


                                                 CHF 74 million in legal provisions were reversed        CHF 58 million of the restructuring provisions were
                                                 in 2004. Most of this amount – CHF 68 million –         used in 2004 for the restructuring announced in
                                                 related to the legal dispute with Société Holco and     autumn 2003. These funds were not wholly used in
                                                 Société d’exploitation AOM Air Liberté. The re-         the restructuring categories originally planned,
                                                 maining CHF 6 million derived from the reassess-        owing to changes in the assumptions made in
                                                 ment of the legal case with the French fiscal           2003. The CHF 1 million provision made in 2002
                                                 authorities (“taxe professionnelle” and “impôt sur      for invoices relating to former subsidiary Crossair
                                                 les sociétés”) (see Note 30).                           Engine Repair AG, Winterthur was reversed in full.

                                                 The provision for aircraft maintenance is for operat-   The Swiss TravelClub frequent flyer programme
                                                 ing leases and is due every 3 to 6 years, depending     position contains the expected costs of SWISS’s
                                                 on the contract and the degree of utilisation.          frequent flyer programme in the amount of
                                                                                                         CHF 53 million which is approximately used in
                                                                                                         the following two years.

108                                                                                                                                                                                                                                                                                                                   109
Swiss International Air Lines Group          Financial Report 2004                                                                                              Swiss International Air Lines Group   Financial Report 2004
Annual Report 2004                           Notes to the consolidated financial statements                                                                     Annual Report 2004                    Notes to the consolidated financial statements




Credit risk                                  Most ticket and freight sales are handled by               The Group has a large number of customers that                                                The table below summarises, by major currency,
                                             agencies. These agencies commonly use                      are internationally dispersed and involved in a wide                                          the contractual amounts of the Group’s forward
                                             settlement clearing houses and the credit risk of          range of industries. Therefore, the Group does not                                            exchange, futures and options contracts.
                                             individual agencies is assessed by the clearing            have any significant concentration of credit risk.
                                             houses on a regular basis. In addition, the clearing                                                               CHF million                           Notional amount
                                             houses net all receivables and payables on a               Transactions involving derivative financial instru-                                           2004            2003
                                             monthly basis, reducing the credit risk exposure.          ments are with counterparts enjoying a high credit
                                                                                                        rating. Accordingly, management does not expect         USD purchase                           106                 16
                                             The exposure to credit risk is monitored on an on-         any counterpart to fail to meet its obligations.        USD sale                                 0                  0
                                             going basis. Allowances for credit losses are                                                                      EUR purchase                             0                  0
                                             determined considering historical experience as            At the balance sheet date the maximum exposure          EUR sale                               115                 23
                                             well as information about specific debtors at the          to credit risk is represented by the carrying amount    JPY sale                                27                  1
                                             balance sheet date. Management does not expect             of each financial asset, including derivative finan-    GBP sale                                27                 18
                                             any credit losses in excess of the allowances              cial instruments, presented on the balance sheet.
                                             recognised.                                                There are no off-balance-sheet credit risks.
                                                                                                                                                                                                      The following table shows when the gains and        the derivatives hedge anticipated acquisitions of
                                                                                                                                                                                                      losses reported directly in equity (under hedge     assets, the amounts will adjust the initial measure-
Interest rate risk                           The Group has exposure to both fair value and cash         tion of interest-bearing liabilities. The delivery of                                         accounting rules) are expected to enter into the    ment of the underlying asset and will therefore
                                             flow interest rate risk on its finance lease liabilities   nine Airbus A340-300s up to December 31, 2004                                                 determination of net profit or loss. As of Decem-   affect net profit or loss only when the underlying
                                             and borrowings and liabilities under its operating         (thereof seven in 2003) financed on variable USD                                              ber 31, 2004 these gains and losses show that       asset does so. Otherwise the gains and losses
                                             lease contracts. The Group aims to limit the inter-        rate finance leases has increased the Group’s                                                 the cumulated hedge losses reported in equity       will be reported in income when the forecasted
                                             est rate risk and to achieve optimal ratios regarding      exposure to floating USD interest rates.                                                      of CHF 3 million are recognised in the income       transaction occurs and is recognised in the income
                                             fixed to float interest rate exposure and the dura-                                                                                                      statement within the next 3 to 6 months. Where      statement.

                                                                                                                                                                CHF million                           2004              2004              2003            2003
                                             The following table indicates the swaps held and                                                                                                         Gains             Losses            Gains           Losses
                                             their weighted-average interest rates. Average
                                             floating rates are based on rates implied in the yield                                                                                                   Adjustments reported in income when the
                                             curve at December 31.                                                                                                                                    forecasted transaction occurs:

CHF million                                                                                                    2004                  2003                       Less than 3 months                        1                –2                 0              –1
                                                                                                                                                                Between 3 months and 1 year               0                –2                 0               0
Pay-floating swaps (IRS) – notional amount                                                                        50                   60                       More than 1 year                          0                 0                 0               0
Average pay rate                                                                                              3.14 %               1.41 %
Average receive rate                                                                                          6.52 %               6.73 %


Foreign currency risk                        Exposure to foreign exchange rates arises from             applied. The Group then hedges its net transaction
                                             transactions in currencies other than the Group’s          exposure externally in the foreign exchange mar-
                                             functional currency, which is the CHF. The Group           kets with first-class banks. The hedge horizon for
                                             differentiates between risk from operations and            operating exposure is one to twelve months.
                                             risk from investments. The currencies giving rise
                                             to this risk are primarily the USD and the EUR,            The Group uses forward exchange contracts and
                                             though transactions also occur in a number of              currency options to hedge its foreign currency risk.
                                             other currencies including the GBP and JPY.                Most of the foreign currency derivatives have
                                                                                                        maturities of less than one year from the balance
                                             Whenever possible, internal hedging principles             sheet date. Where necessary, the forward
                                             (matching of foreign currency in- and outflows) are        exchange contracts are rolled over at maturity.




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Fuel price risk                       One of the Group’s most significant operating           and oil products. The time horizon of the Group’s    Fair value                            Fair value measurement principle: The fair value       The fair values of the financial instruments do not
                                      costs is fuel. Therefore, the Group has a significant   hedging strategy covers the three years ahead.                                             of financial instruments is based on their quoted      differ materially from their carrying amounts,
                                      exposure to fluctuations in the price of crude oil      The hedge ratios envisaged are:                                                            market price at the balance sheet date without         because many of the financial assets and liabilities
                                                                                                                                                                                         any deduction for transaction costs. If a quoted       were repriced during 2004.
 1 to 12 months:                      Hedged volume 50 %–80 % of estimated fuel usage                                                                                                    market price is not available, the fair value of the
13 to 24 months:                      Hedged volume 20 %–50 % of estimated fuel usage                                                                                                    instrument is estimated using pricing models or        The fair value of the lease liabilities cannot be cal-
25 to 36 months:                      Hedged volume up to 20 % of estimated fuel usage                                                                                                   discounted cash flow techniques.                       culated with sufficient reliability, because the
                                                                                                                                                                                                                                                leasing contracts are complex and subject to
CHF million                           Notional amount                                                                                                                                    Where discounted cash flow techniques are used,        many variables that influence the value, such as
                                      2004            2003                                                                                                                               estimated future cash flows are based on manage-       interest rates, taxes and the market value of the
                                                                                                                                                                                         ment’s best estimates and the discount rate is         leased asset.
Fuel derivative purchase                57                154                                                                                                                            a market-related rate at the balance sheet date for
Fuel derivative sale                   104                 33                                                                                                                            an instrument with similar terms and conditions.       The loans due from third parties consist mainly of
                                                                                                                                                                                         Where pricing models are used, inputs are based        collateral deposits. The theoretical fair value cor-
                                      At the beginning of 2004, the Group had hedged          The Group resumed its hedging activities in the                                            on market-related measures at the balance sheet        responds to the carrying amount. These assets are
                                      approximately 36 % of its fuel consumption for          fourth quarter of 2004 after having received the                                           date.                                                  restricted and cannot be realised at the discretion
                                      the full year hedged. Due to the Group’s liquidity      CHF 325 million credit facility. The Group started                                                                                                of the Group.
                                      constraints no further hedges were entered into.        to build up new hedge positions to protect the                                             The fair value of derivatives that are not exchange-
                                      In addition the existing hedge position was sold        Group from price fluctuations, especially in the                                           traded is estimated at the amount that the Group       The theoretical fair value of the bank and mort-
                                      during the first quarter of 2004 to enhance the         critical winter months. By December 31, 2004, the                                          would receive or pay to terminate the contract         gages loans exceeds the carrying amount by some
                                      liquidity position with approximately CHF 20 mil-       Group had hedged approximately 27 % of its fuel                                            at the balance sheet date, taking into account         CHF 20 million.
                                      lion. The CHF 20 million profit was spread over the     needs for the following 12 months. The Group has                                           current market conditions and the current credit-
                                      respective fuel purchase periods. The record high       begun to implement a longer term rolling hedging                                           worthiness of the counterparts.
                                      prices of jet fuel created a generally extremely        programme whose adoption should gradually be
                                      difficult market environment in the course of the       completed in the course of 2005.
                                      year.

                                      The following table shows when the anticipated          transferred to the income statement when the fuel
                                      fuel purchases are expected to be recorded.             purchases are recorded in the income statement.
                                      Gains and losses on the hedging derivatives will be

CHF million                           2004               2004               2003              2003
                                      Gains              Losses             Gains             Losses

Less than 3 months                        2               –13                  9                  0
Between 3 months and 1 year               0                 0                 11                  0
More than 1 year                          0                 0                  1                  0


Liquidity risk                        Corporate Treasury is responsible for the Group’s       cash equivalents in order to meet its liquidity
                                      liquidity management and funding. The Group             requirements. We further refer to Note 39.
                                      aims to maintain sufficient reserves of cash and




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Annual Report 2004                              Notes to the consolidated financial statements                                                             Annual Report 2004                              Notes to the consolidated financial statements




                                                In respect of income-earning financial assets and       weighted average effective interest rates at the   CHF million                                            Weighted                                              Between   More
                                                interest-bearing financial liabilities, the following   balance sheet date and the periods in which they                                                          average effective                         Less than   1 and 5   than
                                                table indicates their currency exposure, their          reprice.                                                                                    Note          interest rate            Total            1 year      years     5 years

CHF million                                             Weighted                                                       Between           More              2003
                                                        average effective                               Less than      1 and 5           than              Assets
                                         Note           interest rate               Total               1 year         years             5 years
                                                                                                                                                           Cash and cash equivalents                14                                      229                 229           0       0
2004
Assets
                                                                                                                                                           Fixed-term deposits (< 3 months)
Cash and cash equivalents                14                                            89                    89                0              0
                                                                                                                                                           CHF                                                        0.12 %                 31                  31           0       0
                                                                                                                                                           USD                                                        1.02 %                211                 211           0       0
Fixed-term deposits (< 3 months)                                                                                                                           EUR                                                        1.96 %                 32                  32           0       0

CHF                                                          0.58 %                  254                    254                0              0            Total fixed-term deposits (< 3 months)   14                                      274                 274           0       0
USD                                                          2.23 %                   71                     71                0              0
EUR                                                          2.04 %                   60                     60                0              0
GBP                                                          4.75 %                    7                      7                0              0            Other loans to third parties

Total fixed-term deposits (< 3 months)   14                                          392                    392                0              0            USD                                                        6.30 %                 18                   0           0     18
                                                                                                                                                           EUR                                                        2.36 %                 19                   0          19      0
                                                                                                                                                           JPY                                                        4.07 %                 28                   9          19      0
Fixed-term deposits (> 3 months)                             2.50 %                     4                     4                0              0
                                                                                                                                                           Total other loans to third parties       23                                       65                   9          38     18

Other loans to third parties
                                                                                                                                                           Cash deposits
USD                                                          5.90 %                     5                     0                0              5
EUR                                                          2.36 %                    19                     0               19              0            CHF                                                        0.00 %                 26                  26           0       0
JPY                                                          4.09 %                    22                    22                0              0            USD                                                        0.91 %                 93                  93           0       0
                                                                                                                                                           EUR                                                        1.66 %                 14                  14           0       0
Total other loans to third parties       23                                            46                    22               19              5            Other currencies                                           0.00 %                  0                   0           0       0

                                                                                                                                                           Total cash deposits                      23                                      133                 133           0       0
Cash deposits

CHF                                                          0.09 %                    24                    24                0              0
USD                                                          0.38 %                    70                    70                0              0
EUR                                                          1.81 %                    15                    15                0              0
Other currencies                                             0.00 %                     5                     5                0              0

Total cash deposits                      23                                          114                    114                0              0




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CHF million                                         Weighted                                              Between   More      CHF million                                         Weighted                                              Between   More
                                                    average effective                         Less than   1 and 5   than                                                          average effective                         Less than   1 and 5   than
                                      Note          interest rate            Total            1 year      years     5 years                                         Note          interest rate            Total            1 year      years     5 years

2004                                                                                                                          2003
Liabilities                                                                                                                   Liabilities

Loans and borrowings                                                                                                          Loans and borrowings

USD fixed-rate loan                                     5.69 %                 75                   8          37     30      USD fixed-rate loan                                     5.69 %                 90                   8          38     44
USD floating-rate loan                                  4.91 %                 58                  43          15      0      USD floating-rate loan                                  2.50 %                 99                  99           0      0

Total loans and borrowings            26                                      133                  51          52     30      Total loans and borrowings            26                                      189                 107          38     44

                                                                                                                              Mortgage loans
Mortgage loans                                                                                                                CHF fixed-rate loan                   26                2.31 %                 26                  26           0       0

USD fixed-rate loan                                     3.15 %                 19                  19           0       0
USD floating-rate loan                                  5.23 %                 61                   0          61       0     Finance lease liabilities

Total mortgage loans                  26                                       80                  19          61       0     CHF fixed rate                                          6.90 %                  6                   4           2      0
                                                                                                                              USD fixed rate                                          6.61 %                155                  39          24     92
                                                                                                                              EUR fixed rate                                          3.05 %                119                   1         118      0
Finance lease liabilities                                                                                                     JPY fixed rate                                          4.15 %                 24                   7          17      0

CHF fixed rate                                          6.90 %                  2                   2           0      0      CHF floating rate                                       0.90 %                 66                  66           0       0
USD fixed rate                                          6.56 %                 36                   1           9     26      USD floating rate                                       4.14 %                604                 604           0       0
EUR fixed rate                                          3.04 %                116                  66          50      0      EUR floating rate                                       3.49 %                 17                  17           0       0
JPY fixed rate                                          4.15 %                 16                  16           0      0
                                                                                                                              Total finance lease liabilities       26                                      991                 738         161     92
CHF floating rate                                       1.40 %                 60                  60           0       0
USD floating rate                                       5.66 %                632                 632           0       0

Total finance lease liabilities       26                                      862                 777          59     26




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32. Share capital and share premium                                                                                                                                    Treasury shares                        In 2002, the Group established a foundation with        benefits from its activities, the foundation is fully
                                                                                                                                                                                                              the objective of rewarding employees in con-            consolidated. As of December 31, 2004, the
                                                         The General Meeting of May 6, 2004 approved            As of December 31, 2004 the share capital                                                     nection with length of service (see below). As the      foundation held 16 115 shares (2003: 14) of
                                                         a reduction in share capital through a reduction       consists of 52 670 405 registered shares with                                                 Group has the power to govern the financial and         Swiss International Air Lines Ltd.
                                                         in par value from CHF 32 to CHF 18 per                 a par value of CHF 18.                                                                        operating policies of this foundation so as to obtain
                                                         share. Share capital was therefore reduced by
                                                         CHF 737 385 670 from CHF 1 685 452 960
                                                         to CHF 948 067 290. The loss carried forward                                                                  Stock compensation plans               In March 2002, the Board of Directors approved          The Executive Bonus Plan mentioned in the
                                                         was reduced by the same total amount.                                                                                                                the remuneration of the Board in the form               2003 Annual Report, which included a variable
                                                                                                                                                                                                              of shares. Each Board member receives up to             salary component to be paid in the form of shares,
                                                                                                                                                                                                              500 shares a year.                                      was cancelled on December 31, 2003. Under a
Conditional share capital                                The Extraordinary General Meeting of December 6,       Directors and employees as remuneration                                                                                                               new plan, the variable salary component will
                                                         2001 approved the creation of conditional capital      and for length-of-service rewards. 3 254 of the                                               In April 2002, the Board of Directors approved the      be paid in cash from January 1, 2004 onwards.
                                                         of CHF 60 million through 1 200 000 fully-paid-in      1 875 000 registered shares were issued in                                                    issue of shares to employees as rewards for length
                                                         registered shares with a par value of CHF 50. At       February 2004. These shares were fully paid in.                                               of service. The beneficiaries of this compensation      On June 25, 2004 the Group awarded certain of
                                                         the Ordinary General Meetings of May 6, 2003 and       Share capital therefore increased by CHF 104 128                                              plan are all the employees of the Company.              its employees (Aeropers Union) compensation in
                                                         May 6, 2004, the number of such shares was ad-         to CHF 1 685 452 960 in February 2004.                                                                                                                the form of SWISS shares for the 7 % decrease
                                                         justed to 1 875 000 and to 3 333 333 respectively                                                                                                    The plan is intended to enable beneficiaries to         in their salaries between November 1, 2003 and
                                                         through the reductions in the par value of these       As of December 31, 2004, 27 349 shares of                                                     participate in the growing value of the Company,        December 31, 2005. The number of shares
                                                         shares to CHF 32 and CHF 18 respectively.              Swiss International Air Lines Ltd., which had not                                             to raise identification with the Company and            awarded was based on a par value of CHF 18 per
                                                                                                                been transferred, had been issued for no con-                                                 to provide an incentive for superior work and           share and the total salary amount of CHF 23 million
                                                         This conditional capital is earmarked for any future   sideration. A provision has been made for these                                               performance.                                            waived by the employees concerned. The number
                                                         employee share ownership scheme. The Company           in the accounts.                                                                                                                                      of shares is therefore fixed and amounts to a
                                                         grants shares to the members of the Board of                                                                                                         To this end, a foundation was established which         total of 1.3 million shares. In the reporting year an
                                                                                                                                                                                                              subscribes to new shares under any capital in-          amount of CHF 7 million was recognised in the
                                                                                                                                                                                                              crease. Employees receive 20 to 60 of these shares      personnel expenses based on the stock exchange
                                                                                                                2004                        2003                                                              on their service anniversaries, depending on the        share price per June 25, 2004.
                                                                                                                Number of shares            Number of shares                                                  length of service involved.

On issue at January 1                                                                                           52 667 151                  52 536 680
Conditional share capital increase in cash (fully paid in)                                                           3 254                     130 471                 Translation reserve                    The translation reserve comprises all foreign-
                                                                                                                                                                                                              exchange differences arising from the translation
On issue at December 31                                                                                         52 670 405                  52 667 151                                                        of the financial statements of foreign entities and
                                                                                                                                                                                                              from the translation of liabilities that hedge the
                                                         The holders of ordinary shares are entitled to re-     residual assets. In respect of any of the Company’s                                           Company’s net investment in a foreign entity.
                                                         ceive dividends as declared and are entitled to one    own shares, the voting rights are suspended until
                                                         vote per share at meetings of the Company. All         those shares are reissued.
                                                         shares rank equally with regard to the Company’s                                                              Hedging reserve                        The hedging reserve comprises the effective
                                                                                                                                                                                                              portion of the cumulative net change in the fair
                                                                                                                                                                                                              value of cash flow hedging instruments where
                                                                                                                2004                        2003                                                              the hedged transaction has not yet occurred.
                                                                                                                %                           %

Major shareholders of the Company                                                                                                                                      Revaluation reserve                    The revaluation reserve relates to revaluations of
                                                                                                                                                                                                              available-for-sale investments.
Swiss Confederation, Berne                                                                                      20.4                        20.4
UBS Finanzholding AG, Zurich                                                                                    10.4                        10.4
Finanzdirektion of the Canton of Zurich, Zurich                                                                 10.2                        10.2                       Dividends                              No dividend was distributed in 2004.
Credit Suisse Group, Zurich                                                                                     10.0                        10.0
AMAG Automobil- und Motoren AG, Zurich                                                                           6.8                         6.8
                                                                                                                                                                       Basic and diluted earnings per share   The calculation of basic and diluted earnings per       2004 of 52 706 783 (2003: 52 580 851). Since
                                                                                                                                                                                                              share at December 31, 2004 was based on the             the Group incurred a net loss in both years under
                                                         Swiss International Air Lines Ltd. has a total of      entered into a lock-up agreement under which                                                  net loss attributable to ordinary shareholders of       review, the weighted average number of potential
                                                         around 15 000 shareholders. A group of 29 share-       they have undertaken not to sell their shares before                                          CHF –140 million (2003: CHF –687 million) and a         ordinary shares (2004: 852 193 shares, 2003:
                                                         holders representing 86.1 % of share capital have      August 31, 2005.                                                                              weighted average number of ordinary shares              905 332 shares) did not have any dilutive effect.
                                                                                                                                                                                                              outstanding during the year ended December 31,




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CHF million                                                                                         2004                       2003                       CHF million                                                                                          2004                        2003

33. Operating leases                                                                                                                                      34. Capital commitments

The Group as lessee                        Non-cancellable operating lease rentals                                                                                                                   The Group had the following capital commitments
                                           are payable as follows:                                                                                                                                   as of December 31:

Less than 1 year                                                                                      91                         127                      Capital commitment to purchase aircraft                                                              1 191                       1 432
Between 1 and 5 years                                                                                312                         385
More than 5 years                                                                                    112                         179                      Total capital commitments                                                                            1 191                       1 432

Total operating lease payments                                                                       515                        691
                                                                                                                                                                                                     In addition to the above-mentioned capital com-
                                           The operating lease liabilities relate mainly to oper-   ments for buildings have a term not exceeding                                                    mitments, the Group is party to long-term service
                                           ating lease contracts for aircraft. These amounted       ten years. The facilities at EuroAirport Basel-                                                  agreements for the maintenance of its aircraft.
                                           to CHF 404 million as of December 31, 2004, com-         Mulhouse-Freiburg have been leased for a period
                                           pared to CHF 473 million as of December 31, 2003.        of 50 years.
                                                                                                                                                                                                     The capital commitments to purchase aircraft
                                           As of December 31, 2004, the Group had con-              CHF 126 million were recognised as an expense                                                    are as follows:
                                           cluded operating lease agreements for 22 aircraft.       in the income statement in respect of operating
                                           Lease terms have been agreed for periods of              leases in 2004 (2003: CHF 236 million).               CHF million                                    2005                  2006                  2007                       2008                  Total
                                           between 3 months and 9 years. Some lease agree-                                                                                                                                                                                and beyond
                                           ments include early termination options; others          None of the aircraft held by the Group on operating
                                           cannot be terminated before lease expiry. The            leases have been sub-leased. The Group has sub-       Embraer RJ170                                      0                     0                       0                      394                  394
                                           above table includes early termination dates in          leased one Embraer RJ145, eight Saab SF-2000s         Embraer RJ195                                      0                     0                       0                      476                  476
                                           accordance with fleet planning.                          and eight Saab SF-340s. At December 31, 2004,         Airbus A340-300                                    0                   318                       0                        0                  318
                                                                                                    total future minimum payments expected to be          Other, including maintenance                       3                     0                       0                        0                    3
                                           Apart from aircraft, long-term operating lease           received from these subleases amounted to
                                           agreements for buildings are also held. Lease            CHF 23 million (2003: CHF 26 million). CHF 13 mil-    Total capital commitments
                                           rentals for buildings are adapted to market con-         lion were recognised in the income statement in        to purchase aircraft                              3                  318                        0                      870                1 191
                                           ditions from time to time. Generally, lease agree-       2004 (2003: CHF 14 million).

                                                                                                                                                                                                     The capital commitments include the commit-               In January 2005 the Group agreed with Airbus
The Group as lessor                        The future minimum lease payments under                                                                                                                   ments to purchase three Airbus A340-300 aircraft          to cancel the purchase commitments for the
                                           non-cancellable operating leases including the                                                                                                            and 30 Embraer RJ170/195 aircraft.                        A340-300s due for delivery in the fourth quarter
                                           subleases mentioned above are as follows:                                                                                                                                                                           of 2006.

Less than 1 year                                                                                      12                          12
Between 1 and 5 years                                                                                 16                          17                      CHF million                                                                                          2004                     2003
More than 5 years                                                                                      0                           0
                                                                                                                                                          35. Contingencies
Total operating lease rental receivables                                                              28                          29
                                                                                                                                                          Joint and several liability from the VAT
                                           Certain facilities at EuroAirport Basel-Mulhouse-                                                               accounting group membership                                                                         pro memoria              pro memoria
                                           Freiburg are leased to Swiss Aviation Training Ltd.
                                           The lease expires in 2005.
                                                                                                                                                                                                     The management and the Board of Directors do              Warranties and indemnifications arising from
                                                                                                                                                                                                     not expect any VAT claims to result from the joint        various contractual relationships existed as of
                                                                                                                                                                                                     and several liability of the SAirGroup VAT account-       December 31, 2004. Liabilities will only arise from
                                                                                                                                                                                                     ing group, of which the former Crossair AG was a          these in the event of the violation of the terms and
                                                                                                                                                                                                     member.                                                   conditions concerned. No such violations existed
                                                                                                                                                                                                                                                               on the balance sheet date.




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36. Pledged and restricted assets                                                                                                                     37. Related parties

CHF million                                                      Note                          2004                        2003                                                                           The Group considers its associates and joint ven-     Transactions with members of the Board of
                                                                                                                                                                                                          tures, members of the Board of Directors and          Directors and Group management are limited
Cash and cash equivalents                                        14                               43                          42                                                                          Group management as well as significant share-        to the compensation and allowances paid in
Other receivables                                                17                                0                         105                                                                          holders, if they hold more than 20 % of voting        the ordinary course of business.
Owned aircraft                                                   19                               57                          58                                                                          rights or otherwise have the ability to exercise
Leased aircraft                                                  19                            1 714                       1 838                                                                          significant influence by self-controlled companies,   Transactions with the Swiss Confederation, a signi-
Leased spare engines                                             19                                0                          10                                                                          to be related parties. As a matter of principle,      ficant shareholder with representation on the
Leased other equipment                                           20                                1                          20                                                                          transactions with related parties are conducted       Board, primarily relate to the common taxes, duties
Advance payments for aircraft                                    19                                0                         122                                                                          at arms’ length.                                      and other expenses due to the government and
Property                                                         20                              135                         159                                                                                                                                incurred in the ordinary course of business.
Property under construction                                      20                                0                           1
Loans to third parties                                           23                               46                          65
Cash deposits                                                    23                              114                         133                      CHF million                                                                                               2004                       2003

Total pledged and restricted assets                                                            2 110                      2 553                                                                           Transactions with the Swiss Aviation Training Ltd.
                                                                                                                                                                                                          joint venture:

                                      Credit facilities used in the amount of CHF 37 mil-      The potential proceeds from the sale of the            Description of the transaction
                                      lion for guarantees, letters of credit and derivatives   seven leased Embraer aircraft with a carrying
                                      are partly secured by cash and cash equivalents          amount of CHF 147.7 million serve as security          Expense (including training expense)                                                                        17                          24
                                      with carrying amounts of CHF 43 million.                 on a CHF 75 million loan.                              Income (including training, rent, leasing income)                                                            6                           6
                                                                                                                                                      Dividends received                                                                                           0                           1
                                      Other receivables of CHF 105 million were released       The Company is a concessionaire of various build-
                                      in 2004.                                                 ings at EuroAirport Basel-Mulhouse-Freiburg.
                                                                                               The corresponding agreements generally extend                                                              Transactions with associated companies:
                                      Mortgage loans of CHF 19 million are secured by          to 50 years from the construction of the building,
                                      aircraft with a carrying amount of CHF 30 million.       granting the Company a right similar to a finance      Description of the transaction
                                                                                               lease, and in certain cases to an operating lease.
                                      Certain leased assets serve as security for finance      To the extent that the Company has prefinanced         Expense                                                                                                       0                         25
                                      lease obligations. The Group has also closed a           the construction costs, these form part of the total   Income                                                                                                        0                          1
                                      syndicated credit facility of CHF 325 million and        lease payments. Upon termination of the con-           Dividends received                                                                                            0                          2
                                      an additional letter-of-credit facility of EUR 68 mil-   cession, the Company will not retain any rights or
                                      lion with Barclays and Halifax Bank of Scotland          claims towards the lessor. The Group is not allowed
                                      (see Note 26). Thirty-one aircraft (17 Airbuses,         to sell such properties, which have a total carrying
                                      10 Avro RJ85/100s and four Saab SF-2000s) with           amount of CHF 135 milllion.
                                      a carrying amount of CHF 649 million (thereof
                                      CHF 27 million carrying amount owned aircraft)           Loans to third parties in the amount of CHF 46 mil-
                                      serve as security on these credit facilities.            lion represent collaterals and deposits for aircraft
                                                                                               finance lease contracts.
                                      Following the repayment of the loan financing the
                                      pre-delivery payments relating to the Airbus A340        Cash deposits relate mainly to the maintenance of
                                      order, the advance payments for aircraft were no         aircraft held under operating leases and cash fuel
                                      longer pledged as of December 31, 2004.                  deposits.




122                                                                                                                                                                                                                                                                                                            123
Swiss International Air Lines Group                   Financial Report 2004                                                                                                          Swiss International Air Lines Group    Financial Report 2004
Annual Report 2004                                    Notes to the consolidated financial statements                                                                                 Annual Report 2004                     Notes to the consolidated financial statements




                                                                                                                      Nominal share                      2004            2003        39. Business risks and going concern
                                                                                                                      capital                     Ownership       Ownership
                                                                                                                                               interest (in %) interest (in %)                                              The restructuring programme announced in 2003            field, is intended to reduce net annual costs by a
                                                                                                                                                                                                                            was implemented in full in 2004. The Group work-         recurring CHF 300 million. These actions will be
38. Significant subsidiaries                                                                                                                                                                                                force comprised 6 625 full-time equivalents on           taken over the next 18 months. The Business Plan
                                                                                                                                                                                                                            December 31, 2004 (compared to 8 072 full-time           envisages a break-even result or better for 2006.
A.F.S. Aviation Financial Services AG, Kloten, Switzerland1                                                    F6     CHF      1 000 000                      0                100                                          equivalents on December 31, 2003).                       Consequently these consolidated financial state-
Airline Marketing Services (A.M.S.) Private Ltd., Mumbai, India                                                F      INR      5 000 000                     75                 75                                                                                                   ments were prepared on a going concern basis.
Alpar Flug- und Flugplatz-Gesellschaft AG, Berne, Switzerland2                                                 S      CHF      8 275 500                     17                 23                                          In view of the still-difficult market environment, the
Crossair AG, Basel, Switzerland                                                                                F      CHF        100 000                    100                100                                          high cost of aviation fuel and continuing declines in    In the event of unexpected negative developments
Cross Travel Club AG, Basel, Switzerland                                                                       F      CHF        400 000                    100                100                                          yields, the Board of Directors approved a further        caused by the impact of unplannable exceptional
Swiss Aviation Software AG, Basel, Switzerland                                                                                                                                                                              package of measures on January 17, 2005 under            events which cannot be offset by appropriate
 (formerly: Express City Air Transport AG, Basel, Switzerland)3                                                F      CHF      2 000 000                    100                100                                          which the regional aircraft fleet will be reduced by     corrective action, further restructuring measures
Europe Continental Airways S.A., Saint-Louis, France                                                           F      EUR      2 896 531                    100                100                                          at least 13 aircraft. This action, in association with   may be required. In such an event, the Group’s
Luganair AG, Agno, Switzerland                                                                                 F      CHF        400 000                    100                100                                          the corresponding reduction in flying personnel          liquidity position and – in a worst case – its going
Loyalty Gate Ltd., Kloten, Switzerland4                                                                        F      CHF      5 790 000                     58                 56                                          numbers, the renegotiation of all collective labour      concern ability might be seriously affected within
Mindpearl AG, Kloten, Switzerland                                                                              F      CHF      6 094 900                    100                100                                          agreements and supplier contracts and further            the next 18 to 24 months.
Mindpearl (US) Inc., New York, USA                                                                             F      USD          1 000                    100                100                                          efficiency enhancements in the administrative
Mindpearl GmbH in Liquidation, Frankfurt, Germany5                                                             F      EUR         30 678                    100                100
Stiftung Swiss Mitarbeiterbeteiligung, Basel, Switzerland                                                      F      CHF        100 000                    100                100
Swiss Aviation Training Ltd., Basel, Switzerland                                                               E      CHF      5 000 000                     50                 50   40. Subsequent events
Swisscargo India Ltd., Mumbai, India                                                                           F      INR     10 000 000                     75                 75
                                                                                                                                                                                                                            The Group announced restructuring measures               These actions are intended to gradually achieve a
                                                      1 The participation in A.F.S. Aviation Financial Services AG was sold to Dr. Georg Wiederkehr (see Note 2).                                                           on January 18, 2005 which are designed to provide        recurring CHF 300 million improvement in net
                                                      2 The participation in Alpar Flug- und Flugplatz-Gesellschaft AG was reduced by 5 % of the share capital (see Note 2).                                                a profitable and competitive basis for its future        annual costs, the full effect of which should be
                                                      3 Express City Air Transport AG, which was shown in the 2003 financial report, was renamed Swiss Aviation Software AG                                                 growth. Under these measures, the fleet will be          effective from 2007 onwards. No restructuring
                                                       in July 2004.                                                                                                                                                        downsized by at least 13 regional aircraft operating     provisions were made for this programme in 2004,
                                                      4 The participation in Loyalty Gate Ltd. was increased by 2 % as a result of its capital reduction.                                                                   largely from Basel. A large part of the Group’s cur-     but impairment as far as recognisable. The costs
                                                      5 Service Line GmbH changed its name to Mindpearl GmbH. This subsidiary is in the process of liquidation (see Note 2).                                                rent operations from Basel should be transferred to      of the restructuring will depend on the outcome of
                                                      6 F= fully consolidated; S = equity securities available-for-sale; E = equity method (associated company)                                                             the operation of partner airlines in the course of       the ongoing negotiations with the unions and
                                                                                                                                                                                                                            2006, with the Group retaining a presence on these       suppliers, and cannot yet be estimated with any
                                                                                                                                                                                                                            routes as a codeshare partner. The restructuring         degree of accuracy.
                                                                                                                                                                                                                            envisages the elimination of 800 to 1 000 positions
                                                                                                                                                                                                                            over the next 18 months. The Group expects to
                                                                                                                                                                                                                            achieve further cost savings through renegotiations
                                                                                                                                                                                                                            with its unions and suppliers.




124                                                                                                                                                                                                                                                                                                                                  125
Swiss International Air Lines Group   Financial Report 2004                                                                                         Swiss International Air Lines Group                Financial Report 2004
Annual Report 2004                    Report of the Group Auditors                                                                                  Annual Report 2004                                 Five-year review
                                      to the General Meeting of
                                      Swiss International Air Lines Ltd., Basel




Report of the Group Auditors                                                                                                                        Five-year review
to the General Meeting of
Swiss International Air Lines Ltd., Basel
                                                                                                                                                    CHF million                                            2004                 2003      2002      2001      2000

                                                                                                                                                    Income statement

                                                                                                                                                    Revenue from scheduled services                       2 936                 3 326     3 630     1 046      988
                                                                                                                                                    Revenue from cargo services                             442                   498       421        10       10
                                                                                                                                                    Revenue from charter services                            95                   133       177       188      199
                                      As Group auditors, we have audited the consolidat-    Without qualifying our opinion we draw attention        Revenue from other operations                            46                    50        50        38       77
                                      ed financial statements (income statement, bal-       to notes 39 and 40 to the consolidated financial
                                      ance sheet, statement of changes in equity, cash      statements, which state that on January 17, 2005        Total revenue                                         3 519                4 007     4 278     1 282     1 274
                                      flow statement and notes) of Swiss International      the Board of Directors approved further cost
                                      Air Lines Ltd. for the year ended December 31,        reduction measures and that the revised Business        Loss from operating activities                        –122                  –498      –909      –299        –8
                                      2004, as presented on pages 76 to 125.                Plan envisages that break-even will be achieved
                                                                                            in 2006.                                                Loss for the year                                     –140                  –687      –980      –342       –25
                                      These consolidated financial statements are the
                                      responsibility of the Board of Directors. Our re-     Note 39 further discloses that possible adverse
                                      sponsibility is to express an opinion on these con-   developments arising, contrary to expectations,         Balance sheet at December 31
                                      solidated financial statements based on our audit.    could jeopardise the Group’s liquidity position and      before appropriation of result
                                      We confirm that we meet the legal requirements        accordingly – in the sense of a worst case scenario –
                                      concerning professional qualification and inde-       its ability to continue as a going concern within the   Current assets                                          808                 1 147     2 105     2 537       301
                                      pendence.                                             next 18 to 24 months. Should the Group be unable        Non-current assets                                    2 315                 2 727     2 563     1 702     1 344
                                                                                            to continue as a going concern, the consolidated
                                      Our audit was conducted in accordance with            financial statements would have to be prepared on       Total assets                                          3 123                3 874     4 668     4 239     1 645
                                      auditing standards promulgated by the Swiss           the basis of net realisable values. In this respect     Fixed assets in % of total assets                      74 %                 70 %      55 %      40 %      82 %
                                      profession and with the International Standards       we refer to our audit report to the general meeting
                                      on Auditing (ISA), which require that an audit        of Swiss International Air Lines Ltd., Basel, dated     Liabilities                                           2 271                 2 846     2 952     1 906     1195
                                      be planned and performed to obtain reasonable         March 10, 2005, in which we draw the Board of           Minorities                                                4                     6         7         0        0
                                      assurance about whether the consolidated finan-       Directors’ attention to the provisions of Article 725   Shareholders’ equity                                    848                 1 022     1 709     2 333      450
                                      cial statements are free from material misstate-      of the Swiss Code of Obligations.
                                      ment. We have examined on a test basis evidence                                                               Total shareholders’ equity and liabilities            3 123                3 874     4 668     4 239     1 645
                                      supporting the amounts and disclosures in the         KMPG Fides Peat                                         Equity ratio in %                                      27 %                 26 %      37 %      55 %      27 %
                                      consolidated financial statements. We have also
                                      assessed the accounting principles used, signifi-
                                      cant estimates made and the overall consolidated                                                              Traffic production
                                      financial statement presentation. We believe
                                      that our audit provides a reasonable basis for our                                                            Total available ton kilometres (ATK, in million)      4 773                 5 791     5 147      848       911
                                      opinion.                                                                                                      Total revenue ton kilometres (RTK, in million)        2 986                 3 486     3 213      439       481
                                                                                                                                                    Load factor (weight based)                           62.6 %                60.4 %    62.4 %    51.8 %    52.8 %
                                      In our opinion, the consolidated financial state-
                                      ments give a true and fair view of the financial                                                              Available seat kilometres (ASK, in million)          27 483                33 478   31 520      6 252     6 502
                                      position, the results of operations and the                                                                   Revenue passenger kilometres (RTK, in million)       20 596                24 223   22 371      3 303     3 481
                                      cash flows in accordance with the International                                                               Seat load factor                                     74.9 %                72.4 %   71.0 %     52.8 %    53.5 %
                                      Financial Reporting Standards (IFRS) and              Orlando Lanfranchi              Urs Zeder               Passengers carried (in million)                       9.188                10.761   11.570      5.086     5.360
                                      comply with Swiss law.                                Swiss Certified Accountant      Swiss Certified
                                                                                            Auditor in Charge               Accountant              Freight and mail carried (tons)                     208 165            240 974      214 134     8 079     7 024
                                      We recommend that the consolidated financial                                                                  Number of flights                                   143 650            189 086      226 613   153 581   158 173
                                      statements submitted to you be approved.              Zurich, March 10, 2005                                  Block hours (in thousand)                               299                376          414       212       219
                                                                                                                                                    Aircraft in service at balance sheet date                82                 85          135        78        84


                                                                                                                                                    Personnel numbers (at year-end)

                                                                                                                                                    Total number of staff                                 7 909                 9 634    12 222     4 439     3 680
                                                                                                                                                    Total full-time positions                             6 625                 8 072    10 606     3 978     3 263




126                                                                                                                                                                                                                                                                   127
Swiss International Air Lines   Financial Report 2004   Swiss International Air Lines   Financial Report 2004
Annual Report 2004                                      Annual Report 2004




                                Swiss
                                                        Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                              and the CEO                           7



                                                                                        Products and services                 SWISS: tailored to your needs       12


                                International                                           The 2004 business year
                                                                                                                              Swiss WorldCargo



                                                                                                                              Substantial progress towards
                                                                                                                                                                  15




                                Air Lines Ltd.                                                                                a competitive company
                                                                                                                              2004 financial results
                                                                                                                              SWISS at a glance
                                                                                                                                                                  22
                                                                                                                                                                  24
                                                                                                                                                                  26



                                                                                        Facts and figures                     Traffic results for 2004            34
                                                                                                                              The route network                   36
                                                                                                                              The aircraft fleet                  38



                                                                                        Environmental and political affairs   SWISS and the environment           44
                                                                                                                              Aeropolitical affairs               48



                                                                                        The fascination of flying             SWISS, a network carrier            54
                                                                                                                              The Operations Control Center       56



                                                                                        Corporate governance                                                      62




                                                        Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                              Consolidated balance sheet          77
                                                                                                                              Consolidated statement of
                                                                                                                              changes in shareholders’ equity     78
                                                                                                                              Consolidated cash flow statement    79
                                                                                                                              Notes to the consolidated
                                                                                                                              financial statements                 80
                                                                                                                              Report of the Group Auditors        126
                                                                                                                              Five-year review                    127



                                                                                        Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                              Balance sheet                       131
                                                                                                                              Notes to the financial statements   132
                                                                                                                              Report of the Statutory Auditors    141



                                                                                        Contacts                                                                  144
Swiss International Air Lines Ltd.                 Financial Report 2004                            Swiss International Air Lines Ltd.           Financial Report 2004
Annual Report 2004                                 Income statement                                 Annual Report 2004                           Balance sheet




Income statement                                                                                    Balance sheet
                                                                                                    as of December 31

CHF million                                                                Note    2004     2003    CHF million                                                          Note   2004    2003

Revenue from scheduled services                                                   2 936    3 326    Cash and cash equivalents                                                    450     464
Revenue from cargo services                                                         442      498    Derivative assets                                                             11      52
Revenue from charter services                                                        95      132    Trade receivables                                                    3       243     365
Revenue from other operations                                                        51       52    Other receivables                                                             21     163
                                                                                                    Inventories                                                                   29      33
Total revenue                                                                     3 524    4 008    Prepaid expenses and accrued income                                           30      32

                                                                                                    Current assets                                                               784    1 109
Gain on disposal of fixed and intangible assets                                       7        3
Other operating income                                                              102       98
                                                                                                    Aircraft fleet                                                       4      1 927   2 247
Total income from operating activities                                            3 633    4 109    Property, plant and equipment                                        5        190     242
                                                                                                    Software                                                                       18      23
                                                                                                    Investments in subsidiaries and associates                                     17      19
Cost of materials                                                                 –1 015   –1 262   Loans and other investments                                          6        171     209
Cost of services                                                                  –1 207   –1 448
Personnel expenses                                                                 –748     –945    Non-current assets                                                          2 323   2 740
Depreciation and amortisation                                              1       –311     –251
Impairments                                                                1       –174     –104
Loss on disposal of fixed and intangible assets                                       –6      –13   Total assets                                                                3 107   3 849
Other operating expenses                                                           –294     –613

Loss from operating activities (EBIT) before restructuring costs                   –122     –527    Trade payables                                                       7       240     279
                                                                                                    Interest-bearing liabilities                                         8       245     287
                                                                                                    Derivative liabilities                                                        22      20
Restructuring costs                                                                   0     –205    Other payables                                                       9        37      53
                                                                                                    Unearned transportation revenue                                              385     519
Loss from operating activities (EBIT) after restructuring costs                    –122     –732    Accrued expenses and prepaid income                                          266     353

                                                                                                    Current liabilities                                                         1195    1 511
Result from investments                                                    2          3        5
Financial expenses                                                                  –64      –52
Impairment due to currency exchange losses on prepayments                                           Interest-bearing liabilities                                         10      832     921
 made for cancelled aircraft orders                                                 –23        0    Provisions                                                           11      294     479
Financial income                                                                     54       80
                                                                                                    Non-current liabilities                                                     1 126   1 400
Loss before tax (EBT)                                                              –152     –699

Tax expenses                                                                          0       –6    Total liabilities                                                           2 321   2 911

Net loss for the year                                                              –152     –705
                                                                                                    Share capital                                                                948    1685
                                                                                                    Legal reserves                                                                 0       0
                                                                                                    Balance brought forward
                                                                                                     Loss brought forward from previous year                                     –10     –42
                                                                                                     Loss for the year                                                          –152    –705

                                                                                                    Total shareholders’ equity                                           12      786     938


                                                                                                    Total shareholders’ equity and liabilities                                  3 107   3 849




130                                                                                                                                                                                             131
Swiss International Air Lines Ltd.              Financial Report 2004                                                                                          Swiss International Air Lines Ltd.                     Financial Report 2004
Annual Report 2004                              Notes to the financial statements                                                                              Annual Report 2004                                     Notes to the financial statements




Notes to the financial
statements

CHF million                                                                                              2004                        2003                      CHF million                                                                                2004   2003

1. Depreciation and amortisation                                                                                                                               5. Property, plant and equipment

Aircraft fleet                                                                                            274                          219                     Property and plant                                                                         135    160
Property, plant and equipment                                                                              30                           25                     Owned equipment and installations                                                           54     62
Software                                                                                                    7                            7                     Leased other equipment                                                                       1     20
Impairments                                                                                               174                          104
                                                                                                                                                               Total property, plant and equipment                                                        190    242
Total depreciation and amortisation                                                                       485                         355

                                                                                                                                                               6. Loans and other investments
                                                A CHF 174 million impairment loss had to be rec-         needs. The correction was based on current fair
                                                ognised in 2004 in respect of the aircraft fleet         value. All aircraft are traded in USD. Part of the    Loans to subsidiaries, affiliates and shareholders                                           0      2
                                                (CHF 154 million), aircraft simulators (CHF 9 million)   impairment was based on the weakening of the          Loans to third parties                                                                      46     65
                                                and buildings (CHF 11 million). The impairment           USD over the past few years. The impairment on        Cash deposits                                                                              114    133
                                                for part of the aircraft fleet was based on negative     buildings was estimated at the net realisable value   Other                                                                                       11      9
                                                results from point-to-point traffic not contributing     and was based on infrastructure parts currently
                                                to the long-haul network. The impairment was             unused.                                               Total loans and other investments                                                          171    209
                                                made on the estimated net realisable value of
                                                the aircraft fleet, based on market studies and          The results for 2004 include any impairments
                                                comparable transactions. The supplementary               required in relation to the corporate restructuring   7. Trade payables
                                                depreciation for a further part of the aircraft fleet    communicated in January 2005. With associated
                                                is based on the values established as a result of        negotiations still under way, the precise extent      Trade payables due to subsidiaries, affiliates and shareholders                              2      3
                                                the planned use of manufacturers’ repurchase             of such impairments is currently impossible to        Trade payables due to third parties                                                        238    276
                                                guarantees in 2005 and 2006. The impairment on           determine.
                                                an aircraft simulator is based on reduced training                                                             Total trade payables                                                                       240    279


2. Result from investments                                                                                                                                     8. Interest-bearing liabilities (current)

Dividend income                                                                                             3                            3                     Loans from subsidiaries, affiliates and shareholders                                         1      1
Reversal of value adjustments to subsidiaries                                                               0                            2                     Current portion of mortgage loans                                                           19     26
                                                                                                                                                               Current portion of finance lease liabilities                                               174    153
Total result from investments                                                                               3                            5                     Current portion of loans from third parties                                                 51    107

                                                                                                                                                               Total interest-bearing liabilities (current)                                               245    287
3. Trade receivables

Trade receivables due from subsidiaries,                                                                                                                       9. Other payables
 affiliates and shareholders                                                                               13                            7
Trade receivables due from third parties                                                                  230                          358                     Other payables due to subsidiaries, affiliates and shareholders                              8      3
                                                                                                                                                               Other payables due to third parties                                                         29     50
Total trade receivables                                                                                   243                         365
                                                                                                                                                               Total other payables                                                                        37     53

4. Aircraft fleet

Owned aircraft                                                                                             126                         179
Leased aircraft                                                                                          1 711                       1 838
Improvements to leased aircraft                                                                              3                           6
Spare engines and aircraft spares                                                                           33                          24
Leased spare engines                                                                                         0                          10
Accrued costs for improvements to aircraft                                                                   2                          35
Advance payments on aircraft                                                                                52                         155

Total aircraft fleet                                                                                     1 927                      2 247




132                                                                                                                                                                                                                                                                     133
Swiss International Air Lines Ltd.                     Financial Report 2004                                                                              Swiss International Air Lines Ltd.                     Financial Report 2004
Annual Report 2004                                     Notes to the financial statements                                                                  Annual Report 2004                                     Notes to the financial statements




CHF million                                                                                                2004                      2003                 Conditional share capital                              The Extraordinary General Meeting of December 6,       Directors and employees as remuneration and
                                                                                                                                                                                                                 2001 approved the creation of conditional capital      for length-of-service rewards. 3 254 of the
10. Interest-bearing liabilities (non-current)                                                                                                                                                                   of CHF 60 million through 1 200 000 fully-paid-in      1 875 000 registered shares were issued in Febru-
                                                                                                                                                                                                                 registered shares with a par value of CHF 50. At       ary 2004. These shares were fully paid in. Share
Loans from subsidiaries, affiliates and shareholders                                                          1                         1                                                                        the Ordinary General Meetings of May 6, 2003 and       capital therefore increased by CHF 104 128 to
Non-current portion of mortgage loans                                                                        61                         0                                                                        May 6, 2004, the number of such shares was ad-         CHF 1 685 452 960 in February 2004.
Non-current portion of finance lease liabilities                                                            688                       838                                                                        justed to 1 875 000 and to 3 333 333 respectively
Non-current portion of loans from third parties                                                              82                        82                                                                        through the reductions in the par value of these       As of December 31, 2004, 27 349 shares of
                                                                                                                                                                                                                 shares to CHF 32 and CHF 18 respectively.              Swiss International Air Lines Ltd., which had not
Total interest-bearing liabilities (non-current)                                                           832                        921                                                                                                                               been transferred, had been issued for no con-
                                                                                                                                                                                                                 This conditional capital is earmarked for any future   sideration. A provision has been made for these
                                                                                                                                                                                                                 employee share ownership scheme. The Company           in the accounts.
11. Provisions                                                                                                                                                                                                   grants shares to the members of the Board of

Pending legal claims                                                                                         27                       133
Miles accrued under the Swiss TravelClub frequent flyer programme                                            53                        61                                                                                                                               2004                        2003
Heavy maintenance for fleet                                                                                 109                       138                                                                                                                               Number of shares            Number of shares
Other                                                                                                       105                       147
                                                                                                                                                          On issue at January 1                                                                                         52 667 151                  52 536 680
Total provisions                                                                                           294                        479                 Conditional capital increase in cash (fully paid in)                                                               3 254                     130 471

                                                                                                                                                          On issue at December 31                                                                                       52 670 405                  52 667 151
12. Capital and reserves

Statement of changes in shareholders’ equity                                                                                                                                                                     The holders of ordinary shares are entitled to re-     residual assets. In respect of any of the Company’s
                                                                                                                                                                                                                 ceive dividends as declared and are entitled to one    own shares, the voting rights are suspended until
                                                                                Legal reserves            Balance                    Total                                                                       vote per share at meetings of the Company. All         those shares are reissued.
                                                       Share                    including result          brought            shareholders’                                                                       shares rank equally with regard to the Company’s
CHF million                                            capital                  for the year              forward                  equity

Balance at January 1, 2004                             1 685                          0                    –747                       938                 CHF million                                                                                                   2004                     2003
Capital reduction                                      –737                           0                     737                         0
Conditional capital increase                               0                          0                       0                         0                 13. Contingencies
Net loss for the year                                      0                          0                    –152                      –152
                                                                                                                                                          Joint and several liability from the VAT
Balance at December 31, 2004                             948                          0                   –162                        786                  accounting group membership                                                                                  pro memoria              pro memoria


                                                       The General Meeting of May 6, 2004 approved        As of December 31, 2004 the share capital                                                              The management and the Board of Directors do           Warranties and indemnifications arising from
                                                       a reduction in share capital through a reduction   consists of 52 670 405 registered shares with                                                          not expect any VAT claims to result from the former    various contractual relationships existed as of
                                                       in par value from CHF 32 to CHF 18 per             a par value of CHF 18.                                                                                 joint and several liability of the SAirGroup VAT       December 31, 2004. Liabilities will only arise from
                                                       share. Share capital was therefore reduced by                                                                                                             accounting group, of which the former Crossair AG      these in the event of the violation of the terms and
                                                       CHF 737 385 670 from CHF 1 685 452 960                                                                                                                    was a member.                                          conditions concerned. No such violations existed
                                                       to CHF 948 067 290. The loss carried forward                                                                                                                                                                     on the balance sheet date.
                                                       was reduced by the same total amount.




134                                                                                                                                                                                                                                                                                                                      135
Swiss International Air Lines Ltd.               Financial Report 2004                                                                                   Swiss International Air Lines Ltd.        Financial Report 2004
Annual Report 2004                               Notes to the financial statements                                                                       Annual Report 2004                        Notes to the financial statements




CHF million                                                                                         2004                       2003                      CHF million                                                                                    2004                      2003

14. Pledged and restricted assets                                                                                                                        17. Capital commitments

Cash and cash equivalents                                                                              43                         42                                                               The Company had the following capital
Other receivables                                                                                       0                        105                                                               commitments as of December 31:
Owned aircraft                                                                                         57                         58
Leased aircraft                                                                                     1 714                      1 838                     Capital commitment to purchase aircraft                                                        1 191                     1 432
Leased spare engines                                                                                    0                         10
Leased other equipment                                                                                  1                         20                     Total capital commitments                                                                      1 191                    1 432
Advance payments for aircraft                                                                           0                        122
Property, plant and equipment                                                                         135                        159
Property under construction                                                                             0                          1                                                               The above capital commitments include the            In January 2005 the Company agreed with Airbus
Loans to third parties                                                                                 46                         65                                                               commitments to purchase three Airbus A340            to cancel the purchase commitments for the
Cash deposits                                                                                         114                        133                                                               aircraft and 30 Embraer RJ170/195 aircraft.          A340-300s due for delivery in the fourth quarter
                                                                                                                                                                                                                                                        of 2006.
Total pledged and restricted assets                                                                 2 110                     2 553

                                                                                                                                                         18. Derivative financial instruments
15. Fire insurance value of tangible fixed assets (including software)
                                                                                                                                                                                                   In 2004, derivatives are included in the statutory
Fire insurance value                                                                                3302                       3 322                                                               balance sheet following the guidelines of IAS 39,
                                                                                                                                                                                                   with the exception that the market values of
                                                                                                                                                                                                   cash flow hedges, which under IAS 39 are directly
16. Operating lease liabilities not shown on the balance sheet                                                                                                                                     recognised in equity, have been included in
                                                                                                                                                                                                   accrued expenses and prepaid income (2004:
Less than 1 year                                                                                      90                        123                                                                CHF –14 million).
Between 1 and 5 years                                                                                308                        381
More than 5 years                                                                                    112                        179

Total operating lease liabilities                                                                    510                        683


                                                 The operating lease liabilities relate mainly to   As of December 31, 2004, the Company had con-
                                                 operating lease contracts for aircraft. These      cluded operating lease agreements for 22 aircraft.
                                                 amounted to CHF 404 million as of December 31,     Lease terms have been agreed for periods of
                                                 2004, compared to CHF 470 million as of Decem-     between 3 months and 9 years. Some lease agree-
                                                 ber 31, 2003.                                      ments include early termination options; others
                                                                                                    cannot be terminated before lease expiry. The
                                                                                                    above table includes early termination dates in
                                                                                                    accordance with fleet planning.




136                                                                                                                                                                                                                                                                                                  137
Swiss International Air Lines Ltd.   Financial Report 2004                                                                                       Swiss International Air Lines Ltd.                    Financial Report 2004
Annual Report 2004                   Notes to the financial statements                                                                           Annual Report 2004                                    Notes to the financial statements




19. Pending legal claims                                                                                                                                                                                                                                               Nominal share                      2004            2003
                                                                                                                                                                                                                                                                       capital                     Ownership       Ownership
                                     The Company is party to a number of official           – In addition, the Company may be confronted with                                                                                                                                                   interest (in %) interest (in %)
                                     proceedings and civil lawsuits. Of particular note       further claims that have not yet materialised in
                                     are the following major legal cases, in which the        connection with employment law, branding issues    20. Investments in subsidiaries, affiliates and others
                                     Company features as defendant:                           and other matters relating to the expansion of
                                                                                              the former Crossair into SWISS.                    A.F.S. Aviation Financial Services AG, Kloten, Switzerland1                                                           CHF      1 000 000                      0             100
                                     – The French fiscal authorities are demanding the                                                           Airline Marketing Services (A.M.S.) Private Ltd., Mumbai, India                                                       INR      5 000 000                     75              75
                                       Company to pay French taxes (“taxe profes-           – Compensatory damages claims arising from the       Alpar Flug- und Flugplatz-Gesellschaft AG, Berne, Switzerland2                                                        CHF      8 275 500                     17              23
                                       sionnelle” and “impôt sur les sociétés”). SWISS,       accident of November 24, 2001 are currently        Crossair AG, Basel, Switzerland                                                                                       CHF        100 000                    100             100
                                       maintaining that the Company is domiciled in the       being processed or have already been settled.      Cross Travel Club AG, Basel, Switzerland                                                                              CHF        400 000                    100             100
                                       Swiss sector of EuroAirport Basel-Mulhouse-            The Company expects all such claims to be cov-     Swiss Aviation Software AG, Basel, Switzerland
                                       Freiburg, and is therefore subject to Swiss taxes      ered by existing insurance policies.                (formerly: Express City Air Transport AG, Basel, Switzerland)3                                                       CHF 2 000 000                         100             100
                                       only, has contested these demands.                                                                        Europe Continental Airways S.A., Saint-Louis, France                                                                  EUR 2 896 531                         100             100
                                                                                            – Atraxis Belgium has filed a lawsuit against the    Luganair AG, Agno, Switzerland                                                                                        CHF    400 000                        100             100
                                     – The legal disputes with Société Holco and Société      Company at the commercial court in Belgium for     Loyalty Gate Ltd., Kloten, Switzerland4                                                                               CHF 5 790 000                          58              56
                                       d’exploitation AOM Air Liberté were settled with-      the alleged prior termination of an IT contract.   Mindpearl AG, Kloten, Switzerland                                                                                     CHF 6 094 900                         100             100
                                       out any acknowledgement of any legal obligation        The case is pending.                               Swiss Aviation Training Ltd., Basel, Switzerland                                                                      CHF 5 000 000                          50              50
                                       on SWISS’s part. Legal proceedings are still pend-                                                        Swisscargo India Ltd., Mumbai, India                                                                                  INR 10 000 000                         75              75
                                       ing in Basel, where various companies of the         The Company has created provisions totalling
                                       SAirGroup are contesting any right of recourse to    CHF 27 million for possible risks arising from the                                                         1 The participation in A.F.S. Aviation Financial Services AG was sold to Dr. Georg Wiederkehr.

                                       them on SWISS’s part.                                above-mentioned lawsuits. The Management                                                                   2 The participation in Alpar Flug- und Flugplatz-Gesellschaft AG was reduced by 5 % of the share capital.

                                                                                            Board and the Board of Directors believe, on the                                                           3 Express City Air Transport AG, which was shown in the 2003 financial report, was renamed Swiss Aviation Software AG

                                     – Claims have been lodged in various countries by      basis of their current assessment and the advice                                                            in July 2004.
                                       former employees of the SAirGroup. The plaintiffs    of their legal counsels, that any and all claims                                                           4 The participation in Loyalty Gate Ltd. was increased by 2 % as a result of its capital reduction.

                                       are demanding, inter alia, the Group’s accep-        arising from pending legal cases, together with
                                       tance of their employment under the same terms       the costs of the legal action required, are
                                       and conditions as those which they previously        adequately covered by the existing provisions.                                                                                                                                                                   2004    2003
                                       enjoyed with the SAirGroup. Claims are currently                                                                                                                                                                                                                         %       %
                                       pending in Switzerland and France. The Com-
                                       pany contests all such claims.                                                                            21. Statement of major shareholders

                                                                                                                                                 Swiss Confederation, Berne                                                                                                                                  20.4     20.4
                                                                                                                                                 UBS Finanzholding AG, Zurich                                                                                                                                10.4     10.4
                                                                                                                                                 Finanzdirektion of the Canton of Zurich, Zurich                                                                                                             10.2     10.2
                                                                                                                                                 Credit Suisse Group, Zurich                                                                                                                                 10.0     10.0
                                                                                                                                                 AMAG Automobil- und Motoren AG, Zurich                                                                                                                       6.8      6.8


                                                                                                                                                                                                       Swiss International Air Lines Ltd. has a total of
                                                                                                                                                                                                       around 15 000 shareholders. A group of 29 share-
                                                                                                                                                                                                       holders representing 86.1 % of voting share capital
                                                                                                                                                                                                       have entered into a lock-up agreement under which
                                                                                                                                                                                                       they have undertaken not to sell their shares before
                                                                                                                                                                                                       August 31, 2005.




138                                                                                                                                                                                                                                                                                                                            139
Swiss International Air Lines Ltd.                    Financial Report 2004                                                                                           Swiss International Air Lines Ltd.   Financial Report 2004
Annual Report 2004                                    Notes to the financial statements                                                                               Annual Report 2004                   Report of the Statutory Auditors
                                                                                                                                                                                                           to the General Meeting of Swiss
                                                                                                                                                                                                           International Air Lines Ltd., Basel




                                                                                                                                                                      Report of the Statutory Auditors
                                                                                                                                                                      to the General Meeting of Swiss
                                                                                                                                                                      International Air Lines Ltd., Basel
                                                                                                               2004                         2003
                                                                                                                  %                            %

22. Proportion of capital held by non-Swiss nationals as required
    under Article 103 of the Swiss Ordinance on Civil Aviation

Proportion of capital held by non-Swiss nationals as required
 under Article 103 of the Swiss Ordinance on Civil Aviation                                                      2.1                          2.1                                                          As statutory auditors, we have audited the            Without qualifying our opinion we draw attention
(by voting rights)                                                                                               2.1                          2.1                                                          accounting records and the financial statements       to notes 23 and 24 to the financial statements,
                                                                                                                                                                                                           (income statement, balance sheet and notes)           which state that on January 17, 2005 the Board
                                                                                                                                                                                                           of Swiss International Air Lines Ltd. for the year    of Directors approved further cost reduction
23. Business risk and going concern                                                                                                                                                                        ended December 31, 2004, as presented on              measures and that the revised Business Plan
                                                                                                                                                                                                           pages 130 to 140.                                     envisages that break-even will be achieved in 2006.
                                                      The restructuring programme announced in 2003            field, is intended to reduce net annual costs by a
                                                      was implemented in full in 2004. The Group work-         recurring CHF 300 million. These actions will be                                            These financial statements are the responsibility     Note 23 further discloses that possible adverse
                                                      force comprised 6 625 full-time equivalents on           taken over the next 18 months. The Business                                                 of the Board of Directors. Our responsibility is to   developments arising contrary to expectations
                                                      December 31, 2004 (compared to 8 072 full-time           Plan envisages a break-even result or better for                                            express an opinion on these financial statements      could jeopardise the Company’s liquidity position
                                                      equivalents on December 31, 2003).                       2006. Consequently these financial statements                                               based on our audit. We confirm that we meet           and accordingly – in the sense of a worst case
                                                                                                               were prepared on a going concern basis.                                                     the legal requirements concerning professional        scenario – its ability to continue as a going concern
                                                      In view of the still-difficult market environment, the                                                                                               qualification and independence.                       within the next 18 to 24 months. Should the Com-
                                                      high cost of aviation fuel and continuing declines in    In the event of unexpected negative developments                                                                                                  pany be unable to continue as a going concern, the
                                                      yields, the Board of Directors approved a further        caused by the impact of unplannable exceptional                                             Our audit was conducted in accordance with audit-     financial statements would have to be prepared
                                                      package of measures on January 17, 2005 under            events which cannot be offset by appropriate                                                ing standards promulgated by the Swiss profes-        on the basis of net realisable values. In this respect
                                                      which the regional aircraft fleet will be reduced by     corrective action, further restructuring measures                                           sion, which require that an audit be planned and      we explicitly draw the Board of Directors’ attention
                                                      at least 13 aircraft. This action, in association with   may be required. In such an event, the Company’s                                            performed to obtain reasonable assurance about        to the provisions of Article 725 of the Swiss Code
                                                      the corresponding reduction in flying personnel          liquidity position and – in a worst case – its going                                        whether the financial statements are free from        of Obligations.
                                                      numbers, the renegotiation of all collective labour      concern ability might be seriously affected within                                          material misstatement. We have examined on a
                                                      agreements and supplier contracts and further            the next 18 to 24 months.                                                                   test basis evidence supporting the amounts            KMPG Fides Peat
                                                      efficiency enhancements in the administrative                                                                                                        and disclosures in the financial statements. We
                                                                                                                                                                                                           have also assessed the accounting principles
                                                                                                                                                                                                           used, significant estimates made and the overall
24. Subsequent events                                                                                                                                                                                      financial statement presentation. We believe
                                                                                                                                                                                                           that our audit provides a reasonable basis for our
                                                      The Company announced restructuring measures             These actions are intended to gradually achieve                                             opinion.
                                                      on January 18, 2005 which are designed to provide        a recurring CHF 300 million improvement in net
                                                      a profitable and competitive basis for its future        annual costs, the full effect of which should be                                            In our opinion, the accounting records and
                                                      growth. Under these measures, the fleet will be          effective from 2007 onwards. No restructuring                                               financial statements comply with Swiss law and        Orlando Lanfranchi               Urs Zeder
                                                      downsized by at least 13 regional aircraft operating     provisions were made for this programme in 2004,                                            the company’s articles of incorporation.              Swiss Certified Accountant       Swiss Certified
                                                      largely from Basel. A large part of the Company’s        but impairment as far as recognisable. The costs                                                                                                  Auditor in Charge                Accountant
                                                      current operations from Basel should be transfer-        of the restructuring will depend on the outcome                                             We recommend that the financial statements
                                                      red to the operation of partner airlines in the course   of the ongoing negotiations with the unions and                                             submitted to you be approved.                         Zurich, March 10, 2005
                                                      of 2006, with the Company retaining a presence           suppliers, and cannot yet be estimated with any
                                                      on these routes as a codeshare partner. The re-          degree of accuracy.
                                                      structuring envisages the elimination of 800 to
                                                      1 000 positions over the next 18 months. The
                                                      Company expects to achieve further cost savings
                                                      through renegotiations with its unions and
                                                      suppliers.




140                                                                                                                                                                                                                                                                                                                 141
Swiss International Air Lines   Contacts   Swiss International Air Lines   Contacts
Annual Report 2004                         Annual Report 2004




                                Contacts
                                           Annual Report 2004              Introduction                          Foreword from the Chairman
                                                                                                                 and the CEO                           7



                                                                           Products and services                 SWISS: tailored to your needs       12
                                                                                                                 Swiss WorldCargo                    15



                                                                           The 2004 business year                Substantial progress towards
                                                                                                                 a competitive company               22
                                                                                                                 2004 financial results              24
                                                                                                                 SWISS at a glance                   26



                                                                           Facts and figures                     Traffic results for 2004            34
                                                                                                                 The route network                   36
                                                                                                                 The aircraft fleet                  38



                                                                           Environmental and political affairs   SWISS and the environment           44
                                                                                                                 Aeropolitical affairs               48



                                                                           The fascination of flying             SWISS, a network carrier            54
                                                                                                                 The Operations Control Center       56



                                                                           Corporate governance                                                      62




                                           Financial Report 2004           Swiss International Air Lines Group   Consolidated income statement       76
                                                                                                                 Consolidated balance sheet          77
                                                                                                                 Consolidated statement of
                                                                                                                 changes in shareholders’ equity     78
                                                                                                                 Consolidated cash flow statement    79
                                                                                                                 Notes to the consolidated
                                                                                                                 financial statements                 80
                                                                                                                 Report of the Group Auditors        126
                                                                                                                 Five-year review                    127



                                                                           Swiss International Air Lines Ltd.    Income statement                    130
                                                                                                                 Balance sheet                       131
                                                                                                                 Notes to the financial statements   132
                                                                                                                 Report of the Statutory Auditors    141



                                                                           Contacts                                                                  144
Swiss International Air Lines   Contacts
Annual Report 2004




Contacts


                                Reservations numbers       Within Switzerland:

                                                           0848 85 2000



                                Head office Basel          Swiss International Air Lines Ltd.
                                                           PO Box
                                                           CH-4002 Basel

                                                           Phone     +41 61 582 0000
                                                           Fax       +41 61 582 3333



                                Investor Relations         Swiss International Air Lines Ltd.
                                                           Investor Relations
                                                           PO Box
                                                           CH-4002 Basel

                                                           Phone     +41 61 582 3814
                                                           Fax       +41 61 582 3554
                                                           E-mail    investor.relations@swiss.com



                                Corporate Communications   Swiss International Air Lines Ltd.
                                                           Corporate Communications
                                                           PO Box
                                                           CH-4002 Basel

                                                           Phone     +41 848 773 773
                                                           Fax       +41 61 582 3554
                                                           E-mail    communications@swiss.com

                                                           Web       www.swiss.com




144
Impressum

Published: April 29, 2005

This Annual Report is available in the original German
and in English translation. In all matters of interpretation,
the original German shall prevail.

Published by: Swiss International Air Lines Ltd., Basel

								
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