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Scandinavian Airlines en-route to avert bankruptcy: professor

By Sigurd Neubauer


Scandinavian Airlines – also known as SAS – is a legacy company which was founded in 1946 through a consortium of three airliners merging from Norway, Denmark, and Sweden.

SAS has since its inception become synonymous with Scandinavian culture, but despite its revered iconic status in the three respective countries, it is struggling to stay afloat financially.

Some have even questioned whether SAS can survive given the significant structural challenges that it faces. 

In 2018, Norway sold off its remaining 9.8 percent stake in SAS. The Norwegian government has been a partial owner since 1946.  While the Swedish government  owns 22 percent, it too has since declined to invest additional resources into the struggling airliner. The Danish government also owns a 22 percent stake in the company. 

“Five-ten years ago, Scandinavians were fearful of losing SAS, which is no longer the case,” explains Professor Frode Steen of the Norwegian School of Economics. “Norway was until the sale of the regional Norwegian carrier Widerøe in 2013, an SAS subsidiary, much more concerned with SAS financial status, motivating the later sale in 2018. During the Covid-19 pandemic, Sweden also decided that continuing ownership was not a priority.”

“Denmark is the only government that is entertaining providing SAS with a rescue package as it hopes to position Copenhagen’s Kastrup Airport as its hub,” he adds, then quips: “Kastrup is also Copenhagen’s single largest employer. “

Towards that end, SAS has embarked on an ambitious restructuring plan, which is expected to be released this coming September.  It has also engaged with Apollo Asset Management, a major U.S.-based private equity firm to support the reconstruction phase, agreeing on two major installments of $350 million. SAS was, however, able to call off the last installment at the end, something the market interpreted as a positive signal. 

“Everything considered, one is in a position to believe that SAS will reach an agreement with investors to avert bankruptcy,” the professor explains while adding that the airliner has most likely engaged several other private and institutional investors to raise the approximate 10 billion Norwegian Kroners ($917 million) that is needed to set the company on a solid economic footing.

Steen is a leading academic expert on SAS. Photo credit: Courtesy

SAS CEO Anko van der Werff traveled to New York for talks with Apollo Asset Management

“In 2009, Germany’s Lufthansa wanted to acquire SAS for 10 billion Norwegian Kroners (NOK) but had to withdraw its offer due to the financial crises. During the ensuing years, SAS’ value deteriorated further as the company experienced significant financial problems. The governments of Norway, Denmark, and Sweden, as well as other owners, had to invest billions into the company the following years.”

Even if SAS can find new owners, Steen is not overly optimistic that the company can turn it around given the various structural problems it faces, including what he describes as a historical “inflexible workforce.”

The airliner has too many old planes and a bloated corporate structure while its principal regional competitor, Norwegian, a low-cost airliner, is growing faster than SAS. Norwegian is increasing its market share in the Scandinavian market post-Covid. In the first quarter of 2023, Norwegian transported around 20 percent fewer passengers than SAS; in April and May, this difference was reduced to 9 percent. 

“SAS was struggling to keep up as Norwegian has been able to increase frequencies on important routes such as the one between Oslo and Bergen, challenging SAS role in the Norwegian market.”

Kastrup Airport is Copenhagen's largest employer. Photo credit: Kastrup Airport
A Danish rescue? 

The combination of delays – especially out of Copenhagen’s Kastrup Airport- coupled with expensive tickets put the airliner at a disadvantage as its costs still are high at a time when consumers have grown accustomed to lower prices,” the professor says.  

Much of the delays out of Kastrup Airport is attributed to a shortage of air traffic controllers, he adds. 

Aside from potential international investors acquiring the airliner, another possibility – which Steen considers not unlikely – is that the Danish government increases its stakes in the company.

“The fact that Kastrup is Copenhagen’s largest employer is an added value that the Danish government might be willing to pay for.”

Norwegian is a formidable competitor. Photo credit: Michael Kidmose/Kastrup Airport 

If it ends up doing so, SAS’ headquarters can be expected to move from Stockholm to Copenhagen, and much more focus will be on the Danish market. “But this won’t necessarily make the company more competitive. For instance, will more focus on transporting passengers through Kastrup reduce the number of direct routes out of Sweden and Norway, reducing demand as compared to Norwegian that offers more direct routes from these countries. I guess the only clear advantage is that there will be many more direct flights between Copenhagen and Oslo, but already as of today, SAS offers good frequencies in this city,” Steen says.

To complicate the matter, in 2013 SAS sold its 80 percent stake in Norwegian airliner Widerøe, which mainly services the remote regions of Norway and Sweden. Before 2013 this regional network was coordinated with SAS flight plans, now this network is coordinated with Norwegians’ network, he points out. 

Responding to what SAS CEO Anko van der Werff’s much anticipated restructuring plan could entail, Steen explains that it all comes down to whether the airliner is able to cut costs to be much closer to the level that Norwegian has, which would be a likely requirement for any external investor.

SAS has already been able to reach agreements with existing creditors as well as with various leasing companies but continues to have discussions with some of its unionized employees. However, the signals seem to imply that the only part left for van der Werff’s restructuring plan is to find the 10 billion NOK in new capital, the professor explains.

Neither is Steen convinced that a strategy centering on selling expensive business class tickets is a viable option given the uncertain trajectory of the global economy, especially since interest rates are expected to rise even more in the near to medium term.

While Sweden has declined to invest additional resources in SAS, what Stockholm and Copenhagen may end up doing at the end is to ease the company’s pandemic era loan conditions especially if it succeeds in securing new private sector financing.

Responding to what role the various unions play in whether the company prevails, Steen is quick to point out that the workforce culture seems to be a challenging one for SAS. During last summers’ pilot strike, for instance, representatives for the SAS pilots even expressed willingness to strike until the company goes bankrupt.

“This demonstrates that they had little to no willingness to help the company.” SAS, which has nearly 40 unions spread around Norway, Sweden, and Denmark, has struggled with the Danish ones in particular, probably because of Copenhagen’s willing to support them.  SAS has a culture of strong unions who have been unwilling to negotiate. The prospect of the Danish government bailing out SAS has only emboldened them further,” Steen argues.

The professor also points out that SAS almost went bankrupt in 2012 due to various labor conflicts and credit problems.

“During the 1980s and 1990s, SAS’ and other network carriers struggled with high wages and strong unions. The historical generous compensation and overall benefit packages has been an issue for SAS when entering into a new era of low-cost competition in the 2000s.

The low-cost aviation revolution has made it impossible to keep the compensation and benefit structure that SAS employees have grown accustomed to, he adds. Even though these conditions have been negotiated down, this is still an issue. To drive home his point, Steen points out that until relatively recently, SAS had a 250-page agreement outlining all benefits, including how nice the hotel rooms should be. 

SAS continues to struggle with its Danish unions. Photo credit: Michael Kidmose/Kastrup Airport
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