SAS future lies with consortium that includes Air France-KLM

A consortium that includes investor Castlelake, Air France-KLM, and Lind Invest is to take a combined 60.5 percent majority stake in SAS Scandinavian Airlines. The consortium is the winner of the equity solicitation process, that SAS launched in May and closed on September 25. The transaction remains subject to various conditions and needs approval from creditors and the New York Southern District Bankruptcy Court, which is leading the Chapter 11 restructuring. The decision of the winning bid was made during a Board meeting just thirty minutes before it was announced during a webcast press conference in Stockholm, Board Chairman Carsten Dilling said. The equity raise is part of the SAS FORWARD restructuring plan that was announced in February 2022. It includes a SEK 9.5 billion equity raise, SEK 20 billion in debt restructuring, and SEK 7.5 billion in structural cost reductions. The bidding actually exceeds the targets for the equity raise. The consortium will invest $1.175 billion in the Scandinavian airline. This includes $475 million (SEK 5.225 billion) in new unlisted equity and $700 million (SEK 7.7 billion) in secured convertible debt with a maturity of seven years. This debt could be converted into shares at a later time. This brings the total investment to SEK 12.9 billion, well above the original target of SEK 9.5 billion. Castlelake biggest shareholder Under the revised shareholder scheme, the Danish state will hold 25.8 percent of the equity, up from the current 21.8 percent, and 29.9 percent of the convertible debt. Castlelake, which is known as an investor in various assets and is also an aircraft lessor that owns and manages 250 aircraft with a portfolio of $18 billion, will get 32 percent of the equity and 55.1 percent of the convertible debt. Castlelake will also refinance $500 million in debtor-in-possession loans that helped SAS through the Chapter 11 process. DIP financing was provided by Apollo Asset Management in 2022. Norwegian media reported last weekend that Apollo was one of the bidders for SAS, but the Board opted not to accept its proposal. CEO Van der Werff was unwilling to say why the bid of Apollo fell through. Air France-KLM will take 19.9 percent of the equity and 5.0 percent of the convertible debt. This will be the first major acquisition since Air France and KLM joined forces in May 2004 and can be interpreted as a partial consolidation in Europe. It isn’t clear if Air France-KLM will be represented on the SAS Board of Directors in the near future. In its own press release, Air France-KLM says that the definitive agreements between the members of the Consortium "would include specific provisions whereby Air France-KLM’s stake may be increased such that Air France-KLM may become a controlling shareholder, after a minimum of two years, subject to among other things, certain regulatory conditions and financial performance." Lind Invest is a Danish investor in private and public markets. It will hold approximately 8.6 percent of the equity and 10 percent of the convertible debt. SAS is believed to become the first aviation asset of Lind. Sweden is no longer a shareholder The redistribution of shares means that the Swedish State is no longer a major shareholder in SAS, as it said beforehand that it would not participate in the equity round. Sweden owned a 21.8 percent share, identical to that of Denmark. Asked if this means that SAS will leave Sweden now, CEO Anko van der Werff said that SAS has no intention to reallocate its headquarters from Sweden to Denmark. He pointed out that thousands of staff are based in Sweden and there is no reason to change this. The remaining 13.6 percent of the equity will most likely be distributed among and held by certain creditors who may receive a recovery in equity. Board Chairman Carsten Dilling said that all of SAS' current parent company SAS AB’s common shares and listed commercial hybrid bonds are expected to be canceled, redeemed, and delisted. This is expected to occur during the second quarter of 2024. Consequently, no value is expected for existing shareholders in the listed SAS AB and only a modest recovery is expected for the holders of commercial hybrid bonds." “Holders of common shares in SAS AB are expected to receive no value and, by operation of the Swedish Reorganization, all common shares are expected to be canceled for zero consideration and delisted from Nasdaq Stockholm, Nasdaq Copenhagen and Oslo Bors.” Highest and the best bid Dilling said that “the selected bid is the most favorable for SAS, its creditors and other stakeholders. Securing new capital is one of the key pillars in the SAS FORWARD plan and will provide a strong financial foundation to help drive our airline forward and facilitate our emergence from the U.S. Chapter 11 process. While there is still work remaining, I am pleased to see the great progress we are making to be a competitive and financially strong company.” “The SAS FORWARD program has led us to become a new competitive airline and has obviously positioned SAS as an interesting target for the consolidation that is currently going on in the European airline industry. This bid is extremely interesting and is starting a new era for us in SAS and all of us in Scandinavia,” Dilling added. Van der Werff referred to the bid as the highest and the best for SAS that will bring the much-needed stability to the airline after some two years of restructuring. “This is an investment of almost SEK 13 billion in the reorganized SAS. With that, we are securing and definitely have reached a key objective in our SAS FORWARD plan. It further demonstrates that a bright future lies ahead of SAS.” Like Dilling, Van der Werff said that the new SAS will have access to a much better network out of Scandinavia in the near future. Close ties with new owner Air France-KLM One consequence of the selection of the consortium is that SAS will leave the Star Alliance of which it has been a founder and join SkyTeam, the alliance of Air France-KLM and Delta Air Lines. Van der Werff said that SAS is proud to have been a founding airline of Star Alliance and the benefits it has produced, but joining SkyTeam will open up new options. The transition will not be immediate. “We will remain a member of Star Alliance until further notice.” And there is more to come: “SAS AB will also seek to establish a commercial cooperation with Air France-KLM and its airlines (subject to customary approvals), to the benefit of Scandinavian customers through increased connectivity.” Air France-KLM CEO Ben Smith said in a media statement: “We are pleased to be part of the winning bidding consortium selected by the board of SAS. Air France-KLM looks forward to establishing strong commercial ties with SAS. With its well-established position in Scandinavia and strong brand, SAS offers tremendous potential to Air France-KLM. This cooperation will allow Air France-KLM to enhance its position in the Nordics and improve connectivity for Scandinavian and European travelers. We look forward to being a part of this new chapter in SAS’ history and thank the board of SAS for their trust.” Exit of Chapter 11 expected in Q2 2024 SAS expects to exit Chapter 11 in Q2 2024. The announcement of the bidding will have no effect on the airline’s current operations, but Dilling said that SAS AB will file for a company reorganization in Sweden. This företagsrekonstruktion is comparable to a Chapter 11 process, albeit at a smaller scale. Dilling did not provide details of the restructuring. In the recent past, SAS has seen numerous restructurings that caused much social unrest. A 15-day-long pilot strike in July 2022 forced the Board to file for Chapter 11. SAS will have some steps to take before the new ownership structure will be completed. “Following an agreement with the Investors on the final terms and conditions of the investment, including the future governance of the reorganized SAS, the confirmation and effectiveness of the Chapter 11 Plan will remain subject to various conditions precedent, including obtaining certain approvals, including from the US Court, antitrust authorities, civil aviation authorities, the European Commission, and EFTA Surveillance Authority (as applicable), SAS leaving Star Alliance, the implementation of a Swedish Reorganization at the SAS AB level, and other customary conditions." "There currently remains uncertainty in respect of satisfying such conditions and obtaining required approvals, as well as the terms and timing thereof (particularly in respect of the approval from the European Commission related to State aid and the participation by Denmark and Sweden in the restructuring process.”

No results