UPDATE – SAS has filed for Chapter 11 bankruptcy protection at the New York Southern District Court on July 5. This follows a day after pilot unions announced a strike after they and the unions failed to reach an agreement. SAS files for Chapter 11.
“The on-going strike poses significant challenges to our ability to succeed with our transformation. The Board has concluded that legal tools are required to make progress in our ongoing negotiations with key stakeholders, and ultimately to succeed in making SAS a competitive and financially strong business. The process we have commenced will enable SAS to continue our more than 75-year legacy of being integral to Scandinavian infrastructure and societies. We are confident that the actions we are taking will strengthen SAS’ ability to capture the significant opportunities ahead as the industry continues to recover from the pandemic” said Carsten Dilling, Chairman of the Board of SAS, in a media statement.
Chapter 11 expected to take up to a year
The Chapter 11 procedure is expected to take 9-12 months and should allow SAS to continue operations, but this depends on the financial effects of the strike which could be ‘material’. The airline says it is in “well advanced discussions with a number of potential lenders with respect to obtaining additional debtor-in-possession (DIP) financing for up to $700 million (the equivalent of approximately SEK 7.0 billion), to support its operations throughout this court-supervised process. Debtor-in possession financing is a specialized type of bridge financing for businesses that are restructuring through a chapter 11 process.”
CEO Anko van der Werff added: “Over the last several months, we’ve been working hard to improve our cost structure and improve our financial position. We are making progress, but a lot of work remains and the on-going strike has made an already challenging situation even tougher. The chapter 11 process gives us legal tools to accelerate our transformation, while being able to continue to operate the business as usual.”
Frustrated by strike culture pilot unions
On July 4, CEO Anko van der Werff did little to hide his frustration when reacting to the call of the pilots unions for a strike in the coming days. Despite attempts in the past few to get to an agreement through mediation, the unions said they had no other option than to go for a strike.
The strike by 900 pilots will affect some fifty percent of operations of the parent airline of SAS and hurt some 30.000 passengers a day in what was supposed to be the bussiest week of the summer season. Interestingly, flights at SAS Connect, SAS Link, and external partners aren’t affected. One of the main issues during negotiations has been the reduced pay schemes that SAS wishes to introduce at the new subsidiaries.
In an interview on Norwegian TV, Van der Werff said he was ‘devastated’ by the unions decision: “This really was supposed to be the summer that everyone was looking forward to travel again. This is really bad news. We have had the worst pandemic of our lifetime, hopefully. We have received lots of tax payer’s money and I really find it shameful that this is the way the pilots chose to repay the generosity and patience that the countries (Sweden, Norway, Denmark) have had over the past few years.”
Strike will deter investors
Van der Werff added that the strike will deter investors from participating in SAS and its FORWARD restructuring plan, which includes a reduction of SEK 7.5 billion in structural annual costs by 2024, SEK 20 billion in debt reduction, and raising SEK 9.5 billion in new equity. The Swedish and Norwegian governments said they are prepared to swap debt for equity but will not participate in any rights issue, while Denmark said it will do both. “This is all about finding investors. How on earth is a strike in the busiest week of the last 2,5 years going to help us find and attract investors?”, said Van der Werff.
He put the blame entirely on the doorstep of the unions, speaking about a strike culture: “This is the sixth time in twelve years that pilots are going on strike. Again, how are we going to attract investors if the pilots are continuing this way?” Van der Werff added that the mediation process had been extended twice in the past week, but that the unions for there own reasons elected to make July 4 their deadline.
In a media statement, he said: “A strike at this point is devastating for SAS and puts the company’s future together with the jobs of thousands of colleagues at stake. The decision to go on strike now demonstrates reckless behavior from the pilots’ unions and a shockingly low understanding of the critical situation that SAS is in.”
SAS has had difficulty getting back to positive free cash flow and a positive operating result in the past quarters despite a strong recovery. Some analysts fear that the future of the airline is indeed at risk if the restructuring plan fails to get support. “The strike has a negative impact on the liquidity and financial position of the company and, if prolonged, such impact could become material”, the airline says in the statement.
Van der Werff says SAS remains open to mediation: “We are ready to resume mediation as soon as possible and we will do our utmost to reach an agreement that is viable to secure the long-term competitiveness and financial sustainability of the company. We presume that the SAS Scandinavia pilots’ unions realize what is at stake and choose to continue the work to find an agreement.”
SAS Pilot Group Chairman Martin Lindgren said on Monday he blames the escalation on the airline management, accusing it of not willing to reach an agreement. “SAS wants a strike”, he is quoted on Reuters. The union is willing to continue negotiations but says SAS will have to change its position.
Active as journalist since 1987, starting with regional newspaper Zwolse Courant. Grand Prix reporter in 1997 at Dutch monthly Formule 1, general reporter Lelystad/Flevoland at De Stentor/Dagblad Flevoland, from 2002 until June 2021 radio/tv reporter/presentor with Omroep Flevoland.
Since mid-2016 freelance aviation journalist, since June 2021 fully dedicated to aviation. Reporter/editor AirInsight since December 2018. Contributor to Airliner World, Piloot & Vliegtuig. Twitter: @rschuur_aero.