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Swiss pensions safe in Lufthansa move

GERMANY – Deutsche Lufthansa’s €310m takeover of Swiss International Air Lines is not likely to alter the Swiss company’s pension arrangements.

A spokesman for the Swiss carrier said Lufthansa was not likely “to put pressure” for alterations to employees’ pension arrangements because the company would remain “independent” of Lufthansa group, as Swiss laws require.

The spokesman did not elaborate further on Swiss’s pension promises but in the provisional annual report 2004, published this month, the company says total personnel expenses, including pension payments, amounted to CHF773m (€497.2m) down from the previous year’s CHF958m.

The reports says that “significant pension plans in Switzerland qualify as defined benefit” and that the consolidated balance sheet as of December 31 2004 includes a net liability for the defined benefit plan of CHF11m.

“The funded status of these schemes, calculated in accordance with IAS 19, shows a net obligation in the amount of CHF26 m as of that date (compared to CHF 194m in 2003)”, it also says.

Lufthansa last year set up a dedicated securities portfolio fund to cover its domestic pension commitments within 10-15 years and progressively remove them from its balance sheet.

In a first step Lufthansa paid €565m in a master fund structure with eight sub-funds and one overlay fund, said Walter Schmidt-Cording, head of liquidity and risk management at Deutsche Lufthansa Treasury.

The money is generally invested in euro and global equities and bonds and is managed by different asset managers. The asset allocation was based on an asset-liability study made by Düsseldorf based HSBC Trinkaus & Burkhardt.

Lufthansa and Swiss said earlier this week that that the integration agreement had been signed and that both the supervisory board of Deutsche Lufthansa AG and the board of directors of Swiss International Air Lines AG had approved the business model developed by the companies.

“The Swiss Confederation, the Canton Zurich, and other large shareholders support the transaction” the statement said. It added that a “corresponding approval” had been obtained from more than 80% of the SWISS share capital.

Lufthansa is due to pay an aggregated amount of €310m for the take over.

“The integration of Swiss will naturally influence not only our business performance but also our financial figures in 2005,'' Lufthansa’s chief financial officer Karl-Ludwig Kley was quoted as saying.

The takeover prompted rating agency Standard & Poor’s to review its outlook on Deutsche Lufthansa from stable to negative, confirming a BBB long-term corporate credit rating.

It said: “The negative outlook primarily reflects Standard & Poor’s expectation that the additional challenge of acquiring and integrating Swiss is likely Lufthansa’s business risk.”

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