Scandinavia’s SAS is prepared to utilise court-based restructuring proceedings in order to assist with resolving its financial problems and help push through parts of its ambitious ‘SAS Forward’ transformation plan.
It is looking to raise at least SKr9.5 billion ($970 million) in fresh equity – expecting to source this from new investors – while converting SKr20 billion of debt into equity, but is facing resistance in its efforts to obtain vital support.
The combination of new equity and the debt-to-equity conversion will result in “substantial dilution” of existing shareholders’ interests, it says.
SAS states that the restructuring is necessary not only to defend against increasing competition from operators with much lower cost bases but also to deal with the additional debt incurred during the pandemic – debt which added to an already highly-leveraged balance sheet.
But it remains downbeat on discussions over burden-sharing, stating that “limited progress” has been made so far regarding stakeholder participation and acceptance of this burden, notably with lessors, and there are “no guarantees” that the transformation programme will be completed successfully.
Without labour concession, the company warns that it will be not be possible to raise new capital “or secure the future of the airline”.
SAS is seeking a SKr7.5 billion improvement in annual costs, and claims the labour proportion of this target is less than 20%.
It says it “continues to pursue negotiations” with all its labour groups in order to achieve a consensual outcome.
Should this cost distribution not be achieved, or the new capital sourcing and debt conversions are not implemented, the prognosis for the company is poor.
“SAS will not be able to support its existing capital structure and current liquidity levels,” it says. “It cannot be ruled out that SAS could become unable to meet its obligations over the longer term as they fall due.”
The company says it is “possible” that it will seek to utilise “one or more” court restructuring proceedings, “as is usual” during a corporate financial overhaul.
Conversion of the debt – a mix of on-balance sheet debt, state and commercial hybrid notes, lease liabilities, and other instruments, plus certain contract obligations – is intended to reduce SAS’s debt load and relieve “elevated” financial costs which “weigh on profitability”.
Sourcing of the additional equity, it adds, will provide sufficient liquidity to fund operations through the full implementation of the ‘SAS Forward’ plan.