Swiss Federal Council releases guarantee for SR Technics

During its meeting on July 1, 2020, the Federal Council released the first phase of the guarantee credit for aviation-related businesses. It granted SR Technics Switzerland AG a deficiency guarantee of 60% on a bank loan of CHF 120 million in order to bridge a liquidity shortage. The Federal Council believes that SR Technics provides essential services to airlines which could not be supplied from elsewhere in the short term. The guarantee is subject to strict conditions and the risk borne by the Confederation is compensated in line with market rates.

The entire aviation industry has been severely affected financially by the COVID-19 pandemic. Despite a gradual recovery, the number of flights is still low. As aviation is an economically critical infrastructure, the Federal Council decided on 8 April 2020 to take measures to ensure that Switzerland remains connected to the international air transport system. During its special session, Parliament approved guarantee and budgetary credits worth over CHF 600 million each to support aviation-related businesses, as well as an amendment to the Civil Aviation Act.

Line maintenance is vital for operation

During its meeting on July 1, 2020 , the Federal Council released the first phase of the guarantee credit to support aviation-related businesses worth CHF 79.2 million (72 million plus interest and fees). This will provide SR Technics Switzerland AG (SRT) with temporary liquidity. SRT operates internationally as a provider of technical maintenance services for aircraft, components and engines, and has its headquarters in Kloten. It provides critical line maintenance, which ensures that Switzerland’s airports continue to operate in an orderly manner.

Subsidiary involvement

The Confederation will only act in a subsidiary capacity. SRT has implemented various cost-cutting measures, while its shareholders are contributing to meeting the liquidity needs as far as possible. A consortium of banks has granted an additional loan for the remaining CHF 120 million needed, of which 60% is covered by a deficiency guarantee provided by the Confederation. This guarantee represents CHF 72 million (plus interest and fees). The banks are responsible for the remaining 40% of the credit risk. The Confederation will see an outflow of funds only if the deficiency guarantee is utilised.

Both the Confederation and the banks will be compensated for their involvement in line with market rates. It is intended that SRT will repay the additional loan within three and a half years.

The agreements ensure compliance also with the other conditions laid down by the Federal Council in its decision of 8 April 2020. Specifically, the pledging of shares provides adequate collateral. Furthermore, the funds guaranteed by the Confederation may be used solely to maintain Swiss services, and no funds, in particular dividends, may be distributed to shareholders abroad until the additional loan has been repaid in full. Finally, conditions relating to location and employment law have been defined.

According to the Competition Commission (COMCO), the aid is not compatible with the air service agreement. The Federal Council has noted this position, but wishes to maintain the support. The Federal Council believes that it is not possible to substitute SRT’s line maintenance in the short term, in particular due to the stringent regulatory requirements. Rapid action is required due to the necessary liquidity. SRT’s failure would place an additional burden on flight operations during this challenging period of flight resumption.

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