SAS presents 7.5 bln SEK cost savings plan amid wider quarterly loss

Scandinavian Airlines System (SAS) on Tuesday launched SAS FORWARD, a 7.5 billion SEK cost savings plan. The ailing airline is in need of a new start after a challenging past two years. In the press release (read below), SAS said it posted a wider quarterly loss, blames week demand and though competition on the market.

“For many years SAS has been burdened by an uncompetitive cost structure, that prevents the company from reaching its full potential,” the airline said, “furthermore, the last two years have been the most challenging in the history of the aviation industry and the future remains unpredictable. Travel patterns and market conditions are changing and will have an additional impact on the company. SAS is now, more than ever, in need of a new start.”

SAS will implement measures aimed at securing long-term competitiveness. Along with the already ongoing work of developing an efficient and profitable business, the company is therefore presenting its transformation plan: “SAS FORWARD”.

First quarter of fiscal 2022 results

NOVEMBER 2021–JANUARY 2022

• Revenue: MSEK 5,545 (2,282)
• Income before tax (EBT): MSEK -2,597 (-1,915)
• Income before tax and items affecting comparability: MSEK -2,621 (-1,927)
• Net income for the period: MSEK -2,442 (-2,033)
• Earnings per common share: SEK -0.34 (-0.28)

SIGNIFICANT EVENTS DURING THE QUARTER

• SAS established a partnership with Vattenfall, Shell and LanzaTech to investigate large-scale production of synthetic aviation fuel.
• SAS Connect and SAS Link established operations in Copenhagen and recruitment has started

SIGNIFICANT EVENTS AFTER THE QUARTER

• The SEK 3,000 million credit facility secured with the main owners in 2021, was drawn
• SAS FORWARD is launched – a comprehensive plan to strengthen SAS’ future position

Earnings before tax ended at negative SEK 2.6 billion, down SEK 1.7 billion compared with last quarter, or a SEK 0.7 billion decrease year-on-year. Total operating expenses during the quarter ended at SEK 6.9 billion and total operating revenue landed at SEK 5.5 billion for the quarter. Total revenue decreased 4% compared with the fourth quarter, an improvement of approximately SEK 3.3 billion compared with last year, but still 42% below the first quarter in 2019, which was unaffected by COVID-19. The cash balance at the end of the quarter was SEK 3.4 billion.

Passengers flying with SAS decreased 15% compared to the previous quarter and the flown load factor reached approximately 56%, a decrease of 4 percentage points compared with the earlier quarter. Nevertheless, our capacity was similar to the fourth quarter. Lately on a more positive note we have seen ticket sales accelerating which is promising for times ahead.

SAS FORWARD plan is launched

The pandemic has had a fundamental impact on SAS – ranging from lockdowns, travel-restrictions to structural changes in travel patterns. Absent fundamental change, this will quickly exhaust SAS’ cash resources. Therefore, SAS will proactively adopt a full transformation of its business, including its network, fleet, labor agreements and other cost structures via a broad and comprehensive transformation plan. The plan includes leveraging the SAS brand, achieving unit cost competitiveness, rightsizing the fleet (including refocusing long-haul), and building a sustainable future. SAS FORWARD is a comprehensive business and financial transformation plan designed to place SAS on a solid financial footing.

Key elements of the plan include:

• Reducing the annual costs by SEK 7.5 billion – SAS will aggressively pursue reducing costs with a far more comprehensive burden sharing across all major stakeholder and creditor groups
• Redesigned fleet, network and product offerings – SAS is adopting new network principle and adjusting its fleet and product offerings to position SAS for the future and to enhance customer experience.
• Digital transformation –SAS will undergo a major digital transformation, delivering major improvement in customers’ experiences driving financial benefits
• Positioning SAS as the leader in sustainable aviation – SAS will invest in modern fuel-efficient aircraft, sustainable aviation fuels, emerging technologies and sustainable products and services with incentivized customer behavior change.
• Operating platform acceleration – SAS will improve flexibility and efficiency, and facilitate adapting to changed market demand and competition.
• Strengthening SAS’ balance sheet by deleveraging and raising new capital – SAS FORWARD SEK 7.5 billion annual cost reduction program paves the way for undertaking a complete revitalization of SAS’ balance sheet and to substantially strengthen SAS’ liquidity position, which will allow SAS to further invest in its network, people and continued investments in fuel-efficient aircraft

The success of the program and the ability to attract potential new capital relies on SAS fully achieving the SEK 7.5 billion annual cost take out plan which in turn depends upon SAS stakeholders’ full participation.

In order to achieve the full objectives of the SAS FORWARD plan, SAS has retained the services of Seabury Securities LLC and Skandinaviska Enskilda Banken AB as financial advisors and Weil Gotshal Manges LLP as well as Mannheimer Swartling Advokatbyrå AB as legal advisors.

We will provide an update on the progress of the SAS FORWARD plan in April.

SAS is embarking on a new journey. SAS FORWARD will secure long-term competitiveness and financial strength.