Scandinavian Airlines (SAS) has obtained an approval for securing financing from its lenders and bankers to roll over its huge debt.
SAS, the largest airline in Scandinavia, is the flag carrier of Sweden, Norway and Denmark, whose governments collectively own a 50% stake of the company.
SAS has been in discussions with banks on ways to secure finance and roll over its debt, which is due in 2013. The banks involved in the talks have reportedly stated that they will provide new financing on the condition that state guarantees will be provided on the loans.
The company will soon unveil its turnaround plan approved by its lenders. Designed to cut costs, the plan will include a 1,000 staff cut and cuts of up to 15% in staff salaries.
With its survival uncertain, SAS had postponed releasing its third quarter financial results until its search for financing options was finalized. The company released preliminary figures that show that the company recorded positive earnings before tax (EBT) 568 million crowns for the third quarter of 2012. However, with a negative EBT of 761 million crowns for the first half of 2012, the company remains in a negative year-to-date.
Huge Debt and High Costs
SAS is struggling for survival – heavy yearly losses since 2007 and strong competition from low-fare airlines have left the airline in a precarious financial situation.
The first cost cutting measures are expected to be in salaries. According to industry experts, SAS executive pay levels are significantly higher than industry averages. Many SAS executives earn at least four times as much as executives in competing companies.
SAS workers union leaders are unhappy about the sky-high executive salaries. The leader of Norway’s SAS Personalklubb, Asbjørn Wikestad, said, “I barely have words for it. This is unacceptable. Folks are losing their jobs while others go around collecting enormous amounts. If we’re to get through this cost-cutting process now, the leaders must lead the way.”
Burdened by high debt and high costs, SAS has not recorded a year net profit for the past 5 years, and the company cannot continue operating in its present state.
Non-Core Assets for Sale
As part of the turnaround plan, SAS will sell "non-core assets", and these are forecast to generate 3 billion crowns. Assets that will be up for sale include SAS’ Ground Handling unit, frequent flyer scheme, Eurobonus, and its profitable short-haul carrier, Widerøe. SAS has a 10% holding in Estonian Air and a 38% stake in Air Greenland. The list of assets that will be sold is still to be finalized.
The turnaround plan will enable the company to improve its financial performance – the company is projecting a yield of about 3 billion Swedish crowns ($445.39 million) in pre-tax earnings.
No Formal Announcement of SAS Aid from States
There has not been a formal confirmation whether Sweden, Norway and Denmark will provide financial assistance to SAS, possibly through loan guarantees. However, local newspapers have reported that Swedish, Norwegian and Danish banks and Scandinavian state treasuries may be willing to help SAS once again because they do not want to see SAS get into bankruptcy.
European Commission regulators have not yet been formally notified about any assistance that Sweden, Norway and Denmark may put in the struggling airline.
As a standard regulation, state assistance must be notified to, and approved by the European Commission. The Commission has strict regulations of the levels of permissible governmental support to airlines. A representative of the Commission said, "There have been informal contacts between the Commission and the Scandinavian governments concerned, which started this week. Once we receive notification we will examine what these governments want to do."
SAS was founded in 1946 as a consortium to pull together transatlantic services for Det Danske Luftfartselskab, Svensk Interkontinental Lufttrafik and Det Norske Luftfartselskap. In 1951, the airlines merged to create SAS. SAS operates nearly 190 aircraft to 90 destinations across the world.
SAS' main hub is Copenhagen Airport and secondary hubs include Stockholm-Arlanda Airport and Oslo Airport. Currently, SAS has an annual passenger carrying capacity of nearly 23 million, which positions it as Europe’s eight-largest airline. SAS is the founding member of the Star Alliance.
Drastic cost measures and new capital injection are desperately needed to keep SAS flying high.