Now or never crisis meeting of SAS continues

Tragic negotiations to save troubled SAS or Scandinavian Airlines (OMX: SAS) have been going on late into the night. The company and its lenders had given midnight local time as the final deadline to reach a deal with the unions. The Parties weren’t making significant progress despite numerous suggestions by the unions willing to give some concessions until the last hours of the bargaining. They have clearly decided to call the company’s bluff regarding the take it or leave it ultimatum however, still not taking the situation to be as dire or at the very least seeking to get more time for negotiations. In the very last minute there have been some new developments and meetings with banks and unions will continue into the night.

Local press is reporting that a deal with one of the unions, SAS Norge kabinforening; the company's other cabin crew union from Norway was signed around 1.30 local time. This has been followed by all but one of the eight unions, with the lone holdover by market open being danska kabinförbundet, a Danish cabin crew union. Early Monday afternoon an agreement was reached with them as well. A downgrade from S&P on the company debt could not derail strong momentum of the share for the day.

The management and the lending banks have said reaching a multi-billion savings deal with the unions this weekend involving significant wage cuts is a necessary condition for being able to continue going concern. Should worst fears be realized and the company goes bankrupt, customers who purchased tickets directly from SAS will run into problems trying to get their money back where as those who used a credit card could have better luck. Customers on package deals should contact the company that arranged the travel and those stranded abroad without funds could contact local embassy. As of now thousands of passengers are anxiously waiting to hear any news regarding their flights tomorrow and in the coming days.

SAS plan articulated

Struggling Scandinavian Airlines (OMX: SAS) revealed detailed of its much speculated crisis plan or 4Excellence Next Generation (4XNG) that comes on top of ongoing 4Excellence today together with Q3 interim numbers. The text is strikingly direct and drives a hard bargain toward unions, giving the first of those until Sunday to take the deal. President & CEO Rickard Gustafsson said this is the final call for the entire company if SAS is to continue to exist, requiring fast agreement with relevant labour groups. This should allow 3 billion SEK in annual savings and asset sales of a similar magnitude.

Restructuring should allow an agreement on a new 3.5 billion revolving credit facility to be reached while at the same time lessening the reliance on external lenders. In addition to new union agreements calling for wage cuts, administration functions will be streamlined, compensation plans reduced and pension terms revised. Call centres and ground handling will be outsourced. All in all these measures if implemented should abolish the need to issue new equity. To bring home his point, Gustafsson was first in line to take a 20% pay-cut. Employees are expected to take a cut of up to 15% of their wage.

SAS releases preliminary numbers to combat rumours

Scandinavian Airlines SAS (OMX: SAS) decided to halt the share this morning and release details concerning Q3 2012 in advance. The company said it will report a positive result with an EBT of 568 million SEK on 9% growth in passenger revenue and 6% lower unit costs. The company admitted that a long-term comprehensive plan to address its costs and the effect of equity write-downs expected next year from pension related costs is being finalized.

The negotiations regarding the extension and the amount of revolving credit facility of 4.7 billion that will expire in June 2013 and backstop bilateral facilities that seemed to be the source of the rumours were admitted and SAS said that the finalization of the cost savings plan is essential part of the negotiations. More information is forthcoming later.

SAS meetings with financiers rumoured

Newspaper Dagens Industri wrote on Friday that financial distress faced by Scandinavian Airlines SAS (OMX: SAS) has made its financiers hesitant on extending its loans. The newspaper says the banks and major owners of the airliner, namely governments of Sweden, Norway and Denmark, have had some discussions regarding loan decision coming in the beginning of next year.

There have been a host of other rumours circulating as well and those are starting to irk management. In one day SAS is going to be sold as a whole or in parts and the next day mass layoffs or major wage cuts are imminent, but apparently nothing has yet been decided. Profitability is still a major problem and at the very least, even more efficiency measures seem unavoidable.

Former management and majority owner acquire parts of Cimber Sterling

The recently bankrupt Cimber Sterling found some takers. According to a press release, curator has agreements in place to sell the company in two parts, with former top management taking the other and the previous owner Mansvell grabbing the remains. Mansvell will acquire Cimber Air Maintenance Center and Cimber Air Data and operate them under Skyways brand. This will save a few dozen jobs.

SAS Ab (OMX: SAS) said in a Danish press release that former Cimber Sterling deputy CEO Jacob Krogsgaard, Former COO Jørgen Nielsen and former CLO Alex Dyrgaard will start a new company called Cimber A/S, which will continue to fly the four SAS routes with around 30 daily flights. The agreement is in place and the pilots will be mainly from SAS and cabin crew will consist of former Cimber Sterling employees.

Norwegian intercontinental flights back on agenda, SAS to counter with new plane order?

Few years ago Norwegian Air Shuttle ASA (OSE: NAS) said it was going to challenge incumbents such as SAS (OMX: SAS) and Finnair (OMXH: FIA1S) on cross-continental flights. As far back as in 2009 the company had applied to start routes to Bangkok and New York. Already then the company envisioned using new more fuel efficient aircraft to be able to compete on price. Since then there had been delays with new aircraft and other uncertainties that have delayed these plans.

Now it seems the implementation phase is about to begin. A fw months ago the company placed a massive order for new planes. Finnish newspaper Talouselämä interviewed CEO and major owner Bjørn Kjos. He told the paper that the company will start long-distance flights with a Stockholm-Bangkok route and will then add Oslo-New York to its offering. He boasts that these will be priced so competitively, that customers will prefer to transfer. No matter what, these are unlikely to start this year. It has previously been speculated, that Norwegian might spin-off the international flights into a separate public company.

SAS, which has been in the news over a pilot appearing to work drunk, plans to strike back on European routes. According to an article in aftenbladet.no, SAS plans to renew its fleet while its refocuses on profitable routes. The company would have up to 60 new planes over medium to long term with the bulk of its fleet consisting of the newest Boeing 737s and Airbus A320neos.

Outlook too uncertain, SAS gives no guidance

It must have been a hard day in the SAS (OMX: SAS) offices. In addition to the Cimber Sterling bankruptcy, which may also present the company with some opportunities down the line, affecting some SAS routes and customers, the airliner presented an interim report that painted a muddy picture. Revenue for Q1 2012 printed just below 9.6 billion, which is a 3% improvement on the heels of 53% increase on passenger numbers to 323 000.

This would be all good if not for growing losses during the already seasonally weak quarter. EBIT margin before nonrecurring items was down to -10.9% with the company being over a billion in the red before tax and nonrecurring items for the quarter. Sharp increases in jet-fuel prices and uncertain economic climate were given as reasons for this. The share responded with double-digit loss for the day.

The company is hastening the implementation of the 4Excellence program with measures amounting to 5 billion to be implemented within 2012-2013. On the bright side the operating cash flow was positive and the financial preparedness reflecting the financial condition that still allows some breathing room stood at 8.6 billion on March 31. The company finds 2012 were difficult to predict, with intense competition and high fuel prices adding the main challenges. Passenger numbers are expected to be up in mid-single digits but no profit forecast is given thus far.

SAS says the year has started better than expected

SAS (OMX: SAS) finished the week strongly after providing new financial information together with its Annual Report 2011 on Thursday. The airliner said its cash position remains strong and newly renegotiated credit facilities have improved flexibility.

The company says that the first two months of the year have been far above the company’s own expectations and this means it is well ahead of the curve in implementing its 4Excellence strategy, which aims to reap 5 billion in cost and revenue measures in 2012-2013. First quarter is typically seasonally slow.

After Spanair bankruptcy SAS sat on the table with its creditor banks and agreed with the Revolving Credit Facility and Bi-lateral facility lenders to amend the covenants scheme to achieve further balance sheet flexibility.

SAS says that it does not current foresee the use of the facilities and sees them merely a part of financial preparedness at the moment. The stock hopped 14% on the news on Thursday. Some profit taking occurred on Friday but the stock still finished above 9 SEK in Stockholm, corresponding to almost 15% weekly gain.

City of Copenhagen to buy into the airport?

Copenhagen’s mayor Frank Jensen told Newspaper Børsen.dk that the City of Copenhagen is interested in buying a stake in Copenhagen’s airport (Kastrup). The airport is owned by Københavns Lufthavne Public (OMX: KBHL), which is a public limited company. The City would be an active owner with the idea to help SAS (STO: SAS, OSE: SAS,CPH: SAS) secure routes from the Danish capital.

The largest owner in KBHL has recently been Copenhagen Airports Denmark ApS (CAD), which has been investment Macquarie fund owned. Last year there were large developments in the ownership structure. Macquarie divested half of its holdings to Ontario Teachers’ Pension Plan Board. The State of Denmark also maintains a sizeable portion (just under 40%) in KBHL.

DI: Governments stepping up efforts to sell SAS shares

Dagens Industri writes that the governments of Sweden, Norway and Denmark who together own a majority in SAS have stepped up efforts to find a buyer for a portion of their holding. The business magazine says that an advisor has been asked to give suggestions on how a deal could be struck after the news of Spanair bankruptcy. At the moment it is clearly a buyers’ market as government owned airlines are seen as a thing of the past and come with a burden of old school worker benefits and rigid organization culture. DI does indeed note that it may be difficult to find a suitor.

No 2012 guidance from SAS

As had been made known before, SAS’s (STO: SAS, OSE: SAS,CPH: SAS) earnings before taxes and non-recurring items for 2011 were slightly positive. The Spanair write-down pushed full year net income nearly 1.7 billion into minus. Consequently Q4 2011 was even more in the red than that at more than 2 billion as operations also posted a loss for the quarter. Annual revenues were slightly over 41 billion with Q4 just topping 10 billion.

The company was happy about reduced costs, the billing of the most punctual airliner in Europe in 2011 and for carrying 2 million more customers (27 million in total) than in the previous year. Out of the 22 new routes launched in 2011, CEO Rickard Gustafson highlighted Oslo- New York as a route that achieved exceptionally high load factors.

SAS calls the current situation even more challenging with competitive market, high jet-fuel prices and global economic uncertainty. Thus the company decides to accelerate its 4Excellency strategy. This will mean a reduction of administration staff by 300. The program aims for 5 billion in revenue and cost cutting impact by the end of 2013.

First quarter is usually seasonally weak for SAS to begin with. The company says that in light of the prevailing market conditions, this will also be the case in 2012. The company predicts continued pressure on yield and revenue per available seat kilometre (RASK). The firm is planning for this weaker scenario but is unwilling to give definite guidance. SAS’s stock is down slightly going into afternoon session.

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”.

Swedish government shows support to SAS

Swedish government made clear it has not given up on the struggling airliner as SAS AB (STO: SAS, OSE: SAS,CPH: SAS) could today announce that its agreement for non-domestic flights with the Swedish government has been extended through Kammarkollegiet until May 31, 2013. The contract is worth 700 million SEK to SAS. SAS said in a statement that it is proud that the government values its extensive route network, prices and punctuality.

In 2011 Swedish government officials’ most frequent destinations were Brussels, London and Copenhagen. Alltogether 26 government authorities, departments and colleges use SAS’s services. The Swedish government is the largest shareholder in the company with over 20% holding. The Danish and the Norwegian governments own 14.3% each. The fate of these shares has often been speculated.