The Norwegian government is willing to pump more money into long-troubled Scandinavian Airlines (SAS), but claims the latest bailout effort comes with strings attached. SAS reported a fourth-quarter loss on Tuesday that was much higher than analysts had predicted, and has asked its Scandinavian government owners for help.
SAS’ biggest shareholders include the governments of Norway, Sweden and Denmark, plus a Wallenberg family foundation. SAS on Tuesday asked all shareholders, public and private, to come up with SEK 5 billion in fresh capital through a new stock issue.
The funds are necessary, after SAS reported another stunning fourth-quarter loss of SEK 1.52 billion. The loss was nearly half that reported in the fourth quarter of 2008, but nonetheless much larger than expected and comes despite a major cost-cutting program and the elimination of thousands of jobs already.
SAS shares took a new dive on the news, falling more than 16 percent. SAS’ dismal financial report also included news that passenger counts were down around 14 percent in the fourth quarter as well.
SAS has suffered for years from its traditional role as a state-controlled carrier that’s had to deal with myriad labour unions and expensive employee contracts. It has struggled to meet the new world of deregulation and, not least, the emergence of new cut-rate carriers that were unburdened by bureaucracy, multiple layers of management and labour unions that ensured good wages and working conditions for workers. Competitors like RyanAir and Norwegian Air were able to offer low fares that SAS couldn’t match without incurring huge losses. At the same time, the global finance crisis has cut severely into business travel, which long has been SAS’ most important market.Many of SAS’ unions now claim they support SAS management efforts to keep the airline aloft. An additional 650 jobs are likely to be slashed in yet another round of cost-cutting, which already has seen the elimination of the three national units that ran flights within each of the Scandinavian countries. SAS is now managed from Stockholm, with Mats G Jansson at the controls.
His future hung in the balance on Tuesday, with some analysts speculating that he may be sacrificed as well, or give up. The highly respected Swedish businessman took over in January 2007 but hasn’t been able to turn SAS around yet.
Norway’s government minister in charge of business and industry, Trond Giske, announced Tuesday morning that the Norwegian government is willing to take part in a new share issue, by providing NOK 575 million (about USD 100 million) in new capital if the Parliament agrees. The Swedish government is committing SEK 1 billion.
The Norwegian government pumped NOK 800 million into SAS just a year ago, after its heavy fourth-quarter loss in 2008. “But we are setting clear demands on SAS, in return for our participation,” Giske said in a prepared statement. “We have demanded major cost cuts and that the company refinance loans due this year.”
If those demands are met, Giske said the state “believes SAS can be competitive.” So does his Swedish counterpart, Maud Olofsson.
“When the company, employees, creditors and owners contribute together, SAS can be a competitive company,” she said on Tuesday.
Not all politicians are as willing to hand over more taxpayer money to SAS. A spokesman for the Progress Party, Norway’s most conservative, said the state shouldn’t serve as an ongoing source of cash for the airline.
