Scandinavian Airlines (SAS) is now likely to fly out of bankruptcy, but investors and non-secured creditors including the Norwegian state can lose billions of kroner on its reorganization. SAS’ shares crashed right after SAS announced an agreement with new owners this week, and it remains unclear whether SAS will repay the NOK 1.5 billion crisis loan it received from the Norwegian government during the pandemic.
More than NOK 1.7 billion in share value evaporated when trading of SAS shares resumed on Wednesday. Management at SAS, which has been going through a Chapter 11 bankruptcy process in the US, had made it clear the night before that no approval of the proposed reorganization is expected to be required from existing shareholders of SAS. All of SAS’ common stock and listed bonds are also expected to be “cancelled, redeemed and delisted,” probably during the second quarter of next year. That will render them worthless, with “only a modest recovery” expected for holders of commercial hybrid bonds.
Newspaper Dagens Næringsliv (DN) could later report that while stock in the airline was valued at NOK 2.2 billion on the Oslo Stock Exchange Tuesday afternoon, market value amounted to less than NOK 440 million Wednesday morning. Shares traded on the Stockholm exchange plummeted by 94 percent.
On Thursday, Norwegian Broadcasting (NRK) reported that the state’s loan meant to help keep SAS flying important routes during the Corona crisis is also in jeopardy. The government ministry responsible for the loan acknowledged that the Norwegian state is among SAS’ non-secured creditors. When SAS first filed for bankruptcy in response to a pilots’ strike in the summer of last year, it chose to do so in New York and received protection from creditors under Chapter 11 of the US Bankruptcy Code.
The Norwegian state is thus a creditor with no priority, “and we’re working to limit the losses,” Halvard Ingebrigtsen, a state secretary for the Labour Party in Norway’s trade ministry, told NRK on Thursday. He had no further comment, although some of SAS’ debt may be converted to shares.
The airline itself, meanwhile, will continue to operate through the implementation of its agreement with two large investment funds, the Danish government and Air France-KLM. Together they’re providing SAS with the equivalent of USD 1.175 billion (around SEK/NOK 13 billion). The international funds manager Castlelake will emerge as the largest owner of SAS, with a 32 percent stake, followed by the Danish government with 25.8 percent, Air France-KLM with 19.9 percent and another Danish investment firm, Lind Invest, with 8.6 percent. The remaining 13.6 percent will probably be held by creditors that will convert SAS debt to shares.
For SAS customers, the deal also means that SAS will survive and keep flying but eventually leave the Star Alliance of SAS’ partner airlines. SAS will join the SkyTeam alliance where Air France and KLM are members along with 17 other airlines including Delta of the US, Korean Air and Aeromexico.
One Norwegian analyst, Hans Jørgen Elnæs of Winair, told news service E24 that it can be a strength for SAS to emerge with three hubs in Copenhagen, Paris and at Schipol in the Netherlands. That can yield “very good connections” for SAS passengers, Elnæs noted.
The future of SAS’ own frequent flyer program Eurobonus, however, remains unclear. SAS chief executive Anko van der Werff, brought in just a few years ago as the first non-Scandinavian leader of the airline, has vowed to honour all Eurobonus agreements until SAS leaves Star Alliance (which it founded along with airlines including Germany’s Lufthansa and United of the US) next spring. SAS’s best customers can still use their points for such benefits as flights or upgrades until then, at which point they may be transferred to the Air France-KLM frequent flyer program, called Flying Blue. “We will take good are of our Eurobonus members,” he said.
More airline consolidation expected
DN reported on Thursday that the process and solution for saving SAS may set off more long-anticipated consolidation of the airline industry in Europe. That could in turn result in takeover offers for SAS’ arch rival, Norwegian Air. It’s also emerged from crisis, and is itself trying to take over short-haul carrier Widerøe in Norway.
“Consolidation of the airline industry in Europe has gone more slowly than expected, but there are still expectations that it will happen,” Ole Martin Westgaard, an analyst at DNB Markets, told DN last spring. Now he thinks Norwegian Air is a clear candidate for takeover after SAS’ new owners are in place.
Hans-Erik Jacobsen, an airline analyst at Nordea Markets, agrees. “Air France-KLM coming in on the ownership side of SAS makes Norwegian a more interesting takeover candidate,” he told DN. Westgaard also thinks that Norwegian will be able to capture more business customers from SAS, after SAS’ Eurobonus program leaves the Star Alliance.
While SAS employees and customers have dealt with uncertainty and cutbacks over the past few years, the winners have been all the lawyers and consultants involved in the bankruptcy and reorganization process. E24 has reported that their fees alone are expected to amount to around NOK 2 billion by the time the process is over sometime next year. Among those charging up to NOK 8,900 (more than USD 800) an hour to help SAS has been Oslo law firm Schjødt, although American law firms and brokers have charged the highest fees. DN has reported that chief executive Anko van der Werff is earning around SEK 12.5 million a year for his efforts to rescue SAS, plus pension benefits.
SAS itself, meanwhile, has been doing better as travel resumes after the pandemic that mostly grounded airlines around the world. SAS earned its first profits in nearly four years during the period from May to July and has enjoyed double-digit increases in passenger counts. SAS carried around 2.3 million passengers in August, for example, up 22 percent from the same month last year.