SAS continues to see red in FY23 – can’t wait to exit Chapter 11

Seeing the end of the tunnel. That’s the feeling that SAS Scandinavian Airlines President and CEO Anko van der Werff must have, now that his airline is one step closer to exiting Chapter 11 restructuring early next year. Last week, the Southern District of New York Bankruptcy Court approved the investment agreement with the four new shareholders that was announced in October. However, SAS will only be free to act once it has secured regulatory approval from the European Commission as well as implementing the restructuring of SAS AB in Sweden. Only then, the airline will close the book on a complicated juridical period. It started in February 2022 with the launch of the SAS FORWARD transformation plan and was followed by filing for Chapter 11 in New York in July after the pilot strike. Not surprisingly, SAS’ future dominated the FY2022/2023 earnings presentation on Thursday. Van der Werff welcomes the new consortium, with the Danish State (25.8 percent), Air France-KLM (19.9 percent), Castlelake (32 percent), and Lind Invest (8.6 percent) investing a combined SEK 13.2 billion in the reorganized airline. This includes SEK 5.2 billion in new, unlisted equity, plus SEK 8 billion in secured convertible debt. In October, SAS secured a new debtor-in-financing (DIP) loan of $500 million with Castlelake, which replaces the original loan from Apollo Asset Management that has been repaid. With four new investors stepping into SAS, the Swedish State will no longer be a shareholder. The restructuring of the Swedish holding SAS AB will leave shareholders empty-handed. “Key objective reached” “By securing the financing for the future, we have reached a key objective in our SAS FORWARD plan. It is a testament to the commitment and hard work of everyone in SAS to succeed with our transformation plan. The investment agreement shows that our new investors believe in SAS and our potential to turn things around and remain at the forefront of the airline industry for years to come,” the CEO said. Van der Werff said that moving from Star Alliance to SkyTeam is “a transformative step for SAS, becoming part of something bigger and further strengthening our customer and people offering. We will have access to new destinations, more flight options, and enhanced service offerings. Most importantly, it means we will become an even better partner to our colleagues, customers, and the communities that we serve.” He stressed that changes will not be immediate and that existing Eurobonus loyalty program members will continue to benefit from the offerings. SAS is also satisfied that the European Commission once again approved the SEK 9.5 billion that the Swedish and Danish governments provided in 2020 as part of the recapitalization plan. This included a subscription in hybrid notes and common shares under the EC’s temporary framework for state aid during the pandemic. Ryanair opposed the state aid and sought a ruling of the European Union General Court, which said in May that the support failed to include a step-in mechanism. On Wednesday, the EC once again approved the original recapitalization. Net losses continue Despite carrying 33 percent more passengers or 23.7 million during the financial year 2022/2023, SAS remained lossmaking, attributed in part to the significant depreciation of the Swedish Krona during the final quarter and higher fuel prices. The lower Krona had a deep impact on lease liabilities in dollars. The airline reported an SEK -5.701 billion net loss compared to SEK -7.048 billion in 2021/2022. Passenger revenues improved to SEK 42.043 billion from SEK 31.824 billion, mainly because of operating at a higher capacity. Yields were lower and impacted passenger revenues by SEK 69 million, but they have been impacted by longer sector lengths on routes further South in Europe. Operating expenses grew to SEK 44.748 billion from SEK 35.156 billion. Staffing costs were up SEK 809 million due to more employees. Fuel costs were up by 21 percent to SEK 10.940 billion. Also up were costs for maintenance, wet-leasing, and sales and distribution. The operating loss or EBIT was SEK -2.705 billion versus SEK -3.332 billion last year. Income before tax or EBT was SEK -5.516 billion compared to SEK -7.846 billion. Cash flow from operating activities was SEK 2.427 billion. As Chief Financial Officer Erno Hilden said, Q4 (August-October) has been challenging as the summer season came to a close. The net loss deepened to SEK -1.928 billion from SEK -1.2.38 billion. Again, revenues were higher, to SEK 12.019 billion from SEK 10.651 billion thanks to increased production and 6.8 million passengers. This was up by 17.9 percent year on year and confirms that customers are returning to SAS and that the ramp-up over the period has been successful, said Van der Werff. Revenues were still some 10 percent down on 2019. Capacity growth was the biggest in Scandinavia and Europe. The load factor improved to 77.8 percent but offers room for improvement. Operating expenses were SEK 2.128 billion versus SEK 1.879 billion in Q4 last year, with fuel costs up by 15 percent to SEK 3.296 billion. External expenses were also higher during the quarter. Van der Werff said that many of the structural cost reductions of the SAS FORWARD plan have been implemented, but they can only be recognized after the airline has exited Chapter 11. The operating loss deepened to SEK -662 million versus SEK -92 million in the previous year. EBT was SEK -2.110 billion, up from SEK -1.701 billion. Cash flow from operations was SEK 81 million. At the end of October, net debt stood at SEK 32.634 billion, down SEK 1.023 billion thanks to positive cash flow before financing activities. This was offset by SEK 3.3 billion in new lease liabilities, interest, and currency revaluations of a combined SEK 1.9 billion. SAS's return on invested capital margin was -7 percent. Cash and cash equivalents were “a healthy” SEK 6.2 billion. While hedged for currency fluctuations, the airline remains to be unhedged for fuel. Growing the network This winter season, SAS re-launched a new service from Copenhagen to Bangkok and will soon launch flights to Agadir. Miami will go to double-daily services. While Copenhagen will focus on the long haul, new regional and European routes will be opened in Norway and Sweden. Van der Werff sees 2024 as another year of growth of both the network and passenger numbers, with more to come in 2025 and 2026. However, the airline will have some rebalancing to do when it joins SkyTeam from Star Alliance, which is part of the investor agreement with the new shareholders. SAS’ fleet list of October 31 still includes four Boeing 737-700s, but the airline operated the last commercial flight with the type on November 19. The phasing out will increase the benefits of operating an all-Airbus narrowbody fleet, said Erno Hilden. Including the 737, the fleet counted 134 aircraft. SAS has 21 aircraft on order, including 18 Airbus A320neo’s, of which 12 are due in FY24 and 6 in FY25. Two A350-900s are due in FY25. Another Embraer E195 for SAS LINK will be sourced in FY24, bringing the fleet to 10. SAS has no immediate plans to acquire new long-haul and mid-size aircraft. Van der Werf reiterated that SAS is fully committed to reducing CO2 emissions through sourcing sustainable aviation fuels (SAF). A study with Copenhagen Airport that has been done this year has shown that the use of SAF reduces fine particles by some 30 percent, improving air quality at and around the airport. SAS launched the Eurobonus Conscious Traveler initiative this week, which qualifies participants for various options to reduce their carbon footprint. This includes the purchase of SAF for their flights.

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