Spanair goes belly up, SAS warns on 2011 profit

In relatively expected news even if still unwelcome news, Scandinavian Airlines (STO: SAS, OSE: SAS,CPH: SAS) gave a profit warning after market close on Friday as the company takes a write-down on Spanair exposure. SAS says that Spanair’s Board Of Directors had decided to apply for bankruptcy on Friday after a potential deal with Qatar Airways fell through. SAS is writing down 1.7 billion SEK (over 190 million Euros) on outstanding debt and receivables exposure to Spanair. SAS currently owns 10,9% of Spanair but those shares have already been written down to zero value.

Spanair used to be wholly owned subsidiary of SAS until it sold majority of its holdings for a cash price of one Euro (1€) to a Spanish consortium led by local government owned organizations in Catalonia approximately two years ago. At that time SAS maintained a 19.9% minority stake and took a nearly 5 billion SEK total loss in 2008 accounts from capital losses, goodwill write-downs and non recurring restructuring costs. The CEO at the time expressed confidence in Spanair going forward.

In the profit warning release, SAS also said it expects a positive result before non-recurring items for 2011. This write-down will naturally be a non-recurring item in 2011 accounts. The company says that liquidity effect is limited to 200-300 million SEK and that the company noted a financial preparedness of SEK 10.6 billion in Q3 accounts making the effect on SAS’s liquidity rather limited. On Friday SAS climbed over 4% boosted by a deal extension with the Swedish government. SAS is set to report its 2011 earnings on February 8th.

SAS had explained its exposures to Spanair in detail in its Q3 2011 report with the premise of “in light of the challenging economic situation in Spain, should Spanair have to go into liquidation, this would be the effect on our accounts”. Initially after the transaction in 2009 Spanair continued to lease 18 aircraft from SAS. Since then the number has come down to five (including four Boeing 717’s, which were already being planned to be gradually returned to SAS subsidiary Blue1).

Spanair has so far only said on its website that the airline has suspended its operations and its planes are grounded. The company has over 3000 employees, who have had to deal with considerable uncertainty in recent years. SAS said it will assist passengers “to the extent practically possible”.