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Bloomberg
After emerging from a debilitating pilot strike, SAS AB now faces its next battle: convincing investors that it’s worth backing the Scandinavian airline’s $3 billion rescue plan.
The carrier has just weeks to secure as much as $700 million in bridge loans to finance ongoing operations while it undergoes US Chapter 11 bankruptcy proceedings, said Jacob Pedersen, an analyst at Sydbank A/S. Investors require proof that planned cost savings are attained in full, the company has said.
That means SAS will have to go deeper than the pilot ranks in its pursuit of savings, Pedersen said, a difficult undertaking for an airline that’s suffered years of labor strife in its three main markets, Sweden, Norway and Denmark. “It’s not enough for SAS to just cut the pilots’ pay, the company must also cut costs for all other employees,†Pedersen said.
The pilot protest further hurt an already wounded airline. The strike affected 380,000 passengers, leading to 3,700 cancelled flights just as summer travel was ramping up again after the pandemic had hampered ticket sales for two years. Preliminary estimates put the cost of the labor dispute at more than 1.5 billion kronor ($146 million), according to the carrier.
The government of Sweden has already announced it will not inject additional new capital into the airline, which started operations in 1946. That, plus the prospect of “a substantial dilution†for existing shareholders that include many small retail savers, indicate the extent of headwinds SAS faces to find new equity investors.
While averted for now, the dispute will make it harder to convince new investors they should back the airline, according to Ole Martin Westgaard, an analyst at DNB Bank ASA.
“We are concerned the significant cost of the strike and the weak process around it will significantly reduce investors’ appetite to participate with new equity in the upcoming restructuring,†Westgaard said.
A crippling debt burden, dwindling cash balance and about 10 billion kronor of lost market value over the past year have left the future of the tri-national airline hanging in the balance as it races to secure a financial lifeline that includes new equity. It filed for bankruptcy protection in the US, saying it expects to complete the court-supervised process within nine to 12 months.
Talks with investors will resume in the next few days, CEO Anko van der Werff told newspaper Dagens Nyheter. SAS is “looking for strategic investors, both Swedish and international†and ones “that understand the aviation industry,†he said.
Those potential backers are unlikely to be rival airlines, but could include investors holding stakes in other carriers, Pedersen at Sydbank said. It’s possible those providing interim debtor-in-possession financing will also end up taking equity in SAS at a later stage of the process, he said.
SAS needs up to $700 million in debtor-in-possession financing, a form of bridge loan, to help company through a Chapter 11 process in US.
Lenders must agree to convert 20 billion kronor of debt (including hybrid notes, Swiss bonds, term loans and jet leases) into common equity. One of SAS’s biggest challenges will be to negotiate lower payments to leasing companies, a difficult undertaking given the scarcity of available aircraft that gives the financiers a competitive negotiating edge, said Pedersen.