Deal Still Must Be Approved By Lufthansa Board

Swiss International Airlines shareholders should see an offer in the mail this week from Cologne, Germany-based Lufthansa, as the boards for both airlines agree on the principles of a merger.

"There are long-term benefits for Lufthansa," Frank Skodzik, an analyst with WestLB in Dusseldorf, Germany, told Bloomberg News. "Swiss has a very good brand name and attractive premium traffic, and Lufthansa can use Swiss to bring passengers to its Munich and Frankfurt hubs."

Swiss International was created from the ashes of Swissair, which went bankrupt in 2001. Swiss continues to post massive losses on its balance sheet as both it and Lufthansa feel the effects from low-cost carrier competition.

The new company would face major cost-cutting issues -- chief among them, lowering the cost of labor. That won't be easy after the merger, according to Skodzik. "The earnings released Friday showed that Swiss needs a lot more work to become profitable, and I thought that they would first figure that out before entering concrete talks with Lufthansa," he told Bloomberg. "It'll be harder for Swiss to get concessions from unions when Lufthansa, a foreign company, is essentially sitting there as a negotiating partner."

FMI: www.swiss.com/web/IE6, http://cms.lufthansa.com