SAS Raising $1.3 Billion to Fund Carrier’s Survival Strategy

Scandinavian airline SAS AB will raise 12 billion kronor ($1.3 billion) from investors including Sweden and Denmark as it battles to survive a global slump in travel.

The plan, also backed by the Wallenberg family, includes share sales, a rights offer and the issue of hybrid notes, as well as conversion of some 3.75 billion kronor of debt into equity, SAS said Tuesday. Norway was asked to participate but declined, according to Chief Executive Officer Rickard Gustafson.

The refinancing will be accompanied by the elimination of 5,000 posts to help boost efficiency by 4 billion kronor as part of a new business plan. SAS, one of the few European flag-carriers not part of a larger group, is also standardizing on Airbus SE jets to minimize expenses. Despite such measures, the Stockholm-based company said it’s unlikely to make a profit in the next few years.

“From a financial and earnings point of view, 2020 and 2021 will dig big holes into our earnings,” Gustafson said in an interview. “The idea with this plan is to make sure we have enough capital to sustain our business throughout these years. Once we get out in 2022, we foresee that we will start delivering black numbers again and become a long-term successful carrier.”

Shares of SAS traded 13% lower as of 1:16 p.m. in Stockholm, taking the stock’s decline this year to almost 50%.

Increased Competition

With demand expected to remain subdued for years following the coronavirus crisis, the company is likely to face increased competition from larger network carriers and low-cost operators like Ryanair Holdings Plc, though local rival Norwegian Air Shuttle ASA may have receded as a threat, saying Monday it had scrapped a deal for almost 100 planes.

SAS will also shrink its fleet, most likely through the early retirement of older planes, according to Gustafson.

Sweden and Denmark will both hold equal 20.05% stakes following the refinancing, compared with holdings of 14.82% and 14.24% previously. The Knut and Alice Wallenberg Foundation, the No. 3 owner, is also participating.

Having previously exited a holding in SAS, Norway was contacted about joining the recovery plan but declined to do so, the CEO said. It is instead providing loan guarantees to carriers including SAS, and helping to subsidize domestic flights, he said.

In all, SAS said, the moves will restore about 14 billion kronor in equity while boosting productivity by between 15% and 25%, allowing it to withstand the crisis and remain a key provider of Nordic travel infrastructure. A few thousand people have already been notified that they’ll be leaving, Gustafson said.

Copenhagen will remain the carrier’s main focus for inter-continental flights under the revised strategy, with smaller long-haul hubs in Stockholm and Oslo.

Fleet Plan

SAS pledged to continue with a fleet-renewal plan through 2025 while saying it’s evaluating a replacement for Boeing Co. 737 jetliners in the 120 to 150 seat segment. That’s after it previously placed an order for 50 Airbus A320neos -- including 15 leased planes -- it said would succeed the 737s.

The carrier agreed to cut CO2 emissions 25% by 2025, five years earlier than planned, and will collaborate with rail operators. Gustafson said he sees no immediate threat to flights such as those to northern Sweden, but that if travelers overwhelmingly prefer the train on routes such as Gothenburg to Stockholm, it may need to review operations.

Danish Finance Minister Nicolai Wammen said in a statement that SAS is crucial for international accessibility, exports, business and jobs both for his country and Scandinavia as a whole, adding that all parties in parliament backed the contribution. Longer term, it may be necessary to get new private investors on board, possibly through conversion of debt into equity, the government said.

The capital injection by the two countries requires approval by the European Union under state-aid rules, SAS said, and will come with a ban on dividend payments and management pay increases, as well as limitations on acquisitions.

Fundraising Highlights:

  • Issue of 2 billion kronor in common stock to major shareholders
  • Common stock rights issue of about 4 billion kronor
  • 6 billion kronor of hybrid notes issued to major shareholders
  • Conversion of 2.25 billion kronor in senior unsecured fixed rate bonds due November 2022 into common shares
  • Conversion of 1.5 billion kronor in subordinated perpetual floating rate capital securities into common shares.

©2020 Bloomberg L.P.

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