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Friday, June 21, 2024

Denmark offers help as SAS struggles to stay airborne

UPDATED: Scandinavian Airlines (SAS) had to issue more warnings this week of flight cancellations this summer, mostly because the airline lacks crews to run them. On Thursday, its pilots added to several crises SAS faces by threatening to strike, but on Friday the Danish government offered to help SAS by boosting its ownership stake and forgiving debt.

SAS is desperately trying to avoid being grounded permanently after years of labour turbulence, strikes, the Corona crisis and now an economic crisis. Management’s crisis plan needs support from creditors including the Scandinavian governments. PHOTO: SAS

It’s been a particularly turbulent week for the beleaguered airline, long a symbol of Scandinavian pride and unity. It has suffered one crisis after another in recent years. The Corona crisis was by far the worst, and like many other airlines around the world, SAS has had trouble reaching cruise elevation again because of uncertainty over passenger demand, staffing troubles after flight crews were laid off or let go during the pandemic and, not least, huge debt and operating losses.

SAS has also been hit by delayed deliveries of aircraft, chaos at airports especially in Europe and its own economic crisis, as the threat of bankruptcy rises. The Danish government based in Copenhagen where SAS also has its main hub, extended some help on Friday, prompting SAS shares to soar on stock exchanges including Oslo’s. Denmark is now willing to boost its ownership stake from just under 22 percent to 30 percent, as long as other shareholders and private investors join in the effort to keep SAS airborne.

The airline warned earlier this spring that it may have to cancel around 4,000 of its scheduled flights this summer, and now that number is rising. “This is of course difficult for all those involved, even though most of our passengers get rebooked on other flights the same day,” SAS spokesperson Tonje Bjerve Sund told Norway’s TV2 on Wednesday. “We may, though, have more cancellations during the summer months.”

That can become a reality if SAS pilots carry out their threat of a strike that could begin on June 29. The airline’s strong pilots’ union has been angry for months because SAS laid off many of them during the Corona crisis and hasn’t rehired them. Instead the airline has opted to hire in new pilots, often from outside Scandinavia who are willing to work for lower wages.

That has infuriated pilots in Norway who formally notified a state mediator on Thursday that they’re set to walk off the job. “We don’t see any other way out,” Roger Klokset, leader of the Norwegian SAS pilots’ union, told state broadcaster NRK. “We’re in a situation where SAS has demanded that pilots account for 30 percent of cost cuts. At the same time they’ve moved our jobs over to employment agencies.”

SAS officials were just as furious, calling the strike threat “irresponsible and showing a shocking lack of understanding for the critical situation SAS is in.” Airline spokesperson Tonje Sund told NRK that “we hope, and expect, that the pilots recognize what’s at stake and will work with us to find a solution.”

It’s the latest in a string of bad news for SAS. The Stockholm-based airline reported a first-quarter loss of SEK 1.5 billion last week and that it may not be able to keep flying without more state guarantees. The Swedish government, one of SAS’ largest shareholders with a 21.8 percent stake, has provided billions worth of support in recent years but made it clear this week that it won’t give any more of the taxpayers’ money to SAS. The government is willing to convert SAS’ debt to the state into more shares, but fresh capital must come from the private market. Newspaper Dagens Næringsliv (DN) reported in May that SAS’ own board already knew that the Scandinavian governments can’t put up more fresh capital if private investors don’t offer at least as much. Otherwise it could violate EU rules.

The Danish government, SAS’ other major shareholder with 21.8 percent, had still been considering more support for the airline this week. Denmark has most at stake if SAS were to go bankrupt, since SAS is by far the dominant carrier at Copenhagen’s Kastrup Airport (CPH). Most of the airline activity at Kastrup is built up around SAS, which uses CPH as its major hub, also for intercontinental routes. Any new private owners gaining leverage in SAS could pull them out.

‘In play’
With SAS’ debt now amounting to nearly SEK 50 billion, the airline is thus widely viewed as being in play, with potential investors bottom-fishing for shares and with fresh capital needing to come from the market. SAS’ share price has plunged by roughly 65 percent over the past year.

Norway sold out of the airline in 2018 and has thus avoided the cost of SAS’ recent losses, although the Norwegian state offered hundreds of millions in support during the Corona crisis to keep critical airline routes within Norway operating. It also guaranteed crisis loans of NOK 1.5 billion that can now be converted to shares, opening for a potential return as an owner. Frode Steen, a professor that the Norwegian business school NHH who specializes in the airline industry, noted that Norway risks losing that money if Norwegian Trade Minister Jan Christian Vestre doesn’t offer more support. Steen thinks it’s better for the Norwegian government to take that loss now, though, than injecting even more money into SAS and losing more billions later.

“Seen from the outside, SAS unfortunately is not a very well-run airline,” Steen told newspaper Aftenposten. “They’re struggling with most everything: They can’t get employees in the company to understand the necessity of cost-cutting and a better operating model. They’re top-heavy. They struggle with their fleet (of various types of aircraft) and now they also have catastrophic problems with liquidity.”

Others want to bail out SAS. “All indications, however, are that the airline is about to fly out of Scandinavian state control,” editorialized newspaper Dagsavisen on Wednesday, before Denmark made its offer.  The newspaper noted that SAS has served “as a strong symbol of Scandinavian unity and quality” since the end of World War II and the newspaper is not alone in hoping all three Scandinavian governments will bail SAS out once again, by supporting its refinancing plan called “SAS Forward” during the course of this summer.

“We support a state purchase of parts of SAS,” editorialized Dagsavisen. “Norway utterly depends on a strong aviation environment and a well-functioning alternative to Norwegian Air.” Otherwise, the newspaper warned, SAS can become another foreign-owned company with “unacceptable” pay and working conditions. The paper is among those urging that all three Scandinavian states follow the situation closely and that Norway takes on a role as a “constructive creditor and potential investor.” Berglund



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