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May 26, 2024

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UPDATE Oct 5 – In an update of its Chapter 11 restructuring and financial outlook, SAS Scandinavian Airlines says it expects to return to reach an operating profit in its financial year 2024 and become net-debt free in 2026. Revenues should return to pre-Covid levels in 2025. SAS reported on September 30. SAS expects to return to profitability in FY24.

The airline is in voluntary restructuring since July 5 after it filed for Chapter 11 with the New York Southern District bankruptcy court. Since then, the court has approved numerous motions as part of the SAS FORWARD restructuring plan that is behind getting the carrier back to profitability.

SAS reported a SEK -6.523 billion net loss for FY21, with the financial year running from November to October. The Income before tax or EBT was SEK -6.523 billion. In the latest update, the airline says to expect an EBT of approximately SEK -8 billion in FY22. The benefits from the restructuring plan will translate into lowering the loss to SEK -4 to -5 billion in FY23 and returning to profitability in FY24. EBT should be a positive SEK 3 to 4 billion in FY26, which corresponds with an EBT margin of 6 to 8 percent.

Revenues should reach SEK 32 billion in FY22, which compares to SEK 14 billion in FY21. The airline projects SEK 40 billion in revenues in FY23 before returning to pre-pandemic levels in 2025. In 2019, SAS reported SEK 45 billion in revenues, and in 2018 SEK 43 billion. It says today that it expects revenues to reach approximately SEK 49 billion in FY26, which would be a new record in the history of SAS.

Part of the FORWARD plan is the restructuring of net debt by some SEK 20 billion. At the end of Q2 of FY22, net debt stood at SEK 32 billion. This is expected to increase to SEK 36 billion by the end of the current financial year, but once debt-restructuring becomes effective in FY23 and FORWARD is fully implemented, SAS should become net-debt-free in FY26. Cash and cash equivalents or liquidity should exceed 15 percent by the end of FY23, increasing to 35-30 percent in FY25 and beyond.

Shareholders heavily diluted

Depending on market conditions, SAS plans an equity capital raise in the first half of 2023. Part of the FORWARD plan is a SEK 9.5 billion capital raise, which will be supported by the Danish government but not by the two other shareholders, Sweden and Norway. SAS warns today that the capital raise will result in a significant dilution for existing shareholders: Given the substantial debt-to-equity conversions anticipated combined with the need for substantial new equity capital, the Company currently expects that the recovery, if any, to unsecured creditors (including holders of commercial hybrid notes and Swiss bonds) will result in significant impairment, and that the resulting dilution to shareholders will likely be substantially greater than 95 percent.”

FORWARD targets SEK 7.5 billion in annual cost reductions until 2026, building on the foundations of previous cost reduction plans in 2020. The ingredients and savings announced today are the same as reported in February, when FORWARD was launched. SEK 2.3 billion should come from the operational model and planning, SEK 1.7 billion from administration, finance, and ICT, SEK 1.2 billion from reducing costs from airport services, and SEK 0.9 billion from commercial and other costs.

That leaves SEK 1.35 billion that are booked from fleet and maintenance cost reductions. SEK 850 million to SEK 1.0 billion are to be achieved by reducing lease and capital costs and SEK 0.5 billion from reducing maintenance costs. As reported earlier this month, SAS has been seeking to reduce the fleet by terminating lease contracts. Initially, it sought the termination/restructuring of ten aircraft, but the carrier later amended the fleet list that was presented to the New York court. The carrier also requested permission for the sale and leaseback of six Airbus A320neo aircraft. CEO Anko van der Werff said in August that SAS has too many widebody aircraft for its future needs.

Update October 5

SAS announced on October 5 that is has reached agreement with ten lessors about the amendment and retention of lease contracts for 33 narrowbody and three widebody aircraft. The lessors involved are AerCap Holdings N.V., Aergo Capital Limited, Aircastle Limited, ALAFCO Aviation Lease and Finance Company, Avolon Aerospace Leasing Limited, CDB Aviation, Dubai Aerospace Enterprise (DAE) Ltd., ICBC Aviation Leasing Co., Ltd., ORIX Aviation Systems Limited and SDH Wings International Leasing Limited.

Van der Werff told AirInsight at the World Aviation Festival in Amsterdam that SAS still has to start discussions with Airbus about the two A350-900s it still has on order and are scheduled for delivery in 2024. This indicates that the airline likely wants to cancel this order.

If the Chapter 11 process goes to plan, SAS expects to complete the restructuring no later than July 2023.

author avatar
Richard Schuurman
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016. Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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