Swissair slides into bankruptcy and splits up PETER CAPELLA Agence France-Presse Zurich

70 years of aviation history ended Monday when Swissair said its flight operations would be swallowed up by its regional subsidiary Crossair, and sought bankruptcy protection for the rest of the airline.

"We are backing a radical fresh start for Switzerland's airline industry," said Marcel Ospel, chairman of the Swiss bank UBS, which put together the recovery plan for the debt-crippled Swiss airline with its counterpart Credit Suisse.

The announcement marked the end of the once-flagship national carrier of Switzerland, saddled with billions of dollars in debt after a failed expansion plan, and hit hard by falling passenger numbers after last month's terrorist attacks in the United States.

Both UBS and Credit Suisse said they were buying Swissair Group's 70.3 percent stake in low-cost Crossair for 260 million francs. They will also inject about 500 million francs in fresh working capital into the European regional airline.

Under the banks plan, the capital will allow it to take over a streamlined Swissair's flight operations, which will shed about one-third of its routes and fleet, with the loss of 2560 jobs, Swissair Group said.

But the remains of Swissair Group, which says it is burdened by about 15 billion francs in debt, will be placed under bankruptcy protection.

1750 of the job losses would occur in Switzerland and analysts said more could not be ruled out for the rest of the group, which employs about 72,000 people worldwide.

Swissair Group chairman Mario Corti said about 3.5 to 3.8 billion Swiss francs was wiped off the group's already ailing balance sheet as the aviation industry as a whole slumped after the attacks in the U.S..

"All the aviation industry is suffering a reduction of credits and it hit our group when we were starting to pick up," Corti said.

The shockwaves from the rescue plan were felt abroad, as Corti told a news conference that Swissair Group would get rid of all its stakes in foreign airline companies under the recovery plan.

The Group has minority stakes in Belgian airline Sabena, South African Airways, Polish airline LOT, Italian regional airline Volare and German charter company LTU.

Corti also announced the group would no longer be able to honour a commitment to contribute several hundred million euros to recovery plans at Sabena, which is majority-owned by the Belgian government, and Air Lib in France.

Sabena is on the brink of bankruptcy, while AirLib (formerly AOM-AirLiberte) was recently rescued from going under and is trying to get back in the air.

"It is important for the Swiss public and for our economy and financial centre that a national flag carrier should provide services out of Switzerland," Ospel said.

"In the light of Swissair's situation, there is no viable alternative to the proposed way forward," he said.

Analysts said earlier that bankruptcy protection would allow the group to renegotiate its debts and commitments.

The group has already shed more than 4,000 jobs since chairman and chief executive Mario Corti was appointed in March to try to halt the company's slide.

Swissair Group has been in severe financial difficulties following a costly "hunter" expansion strategy in recent years.

But Corti admitted his efforts since then -- including sales of profitabale service subsidiaries to raise cash until a full recovery plan could be put together later this month -- were doomed as the aviation industry plunged into crisis after last month's attacks.

The Swiss government was meeting in the evening to consider the rescue plan, as the banks called on the Swiss federal and regional authorities to take a 30 percent stake in the new Crossair's share capital.