Flight International Online news10:00GMT: Scandinavia's SAS Group has blamed the co-operation agreement with Star Alliance partners BMI and Lufthansa for hindering the company's return to profitability.

While SAS Group's recently-released nine-month figures showed that the company had reversed last year's heavy losses, its 'European Co-operation Agreement' with the two carriers had generated a negative earnings impact of SKr363 million ($44 million) - four times that of last year.

SAS Group attributes the losses to "less favourable development" affecting Lufthansa and BMI.

Speaking at a briefing in London, SAS Group president and chief executive Jorgen Lindegaard said: "We would have been in profit [earlier] if it wasn't for this agreement."

Although the pact, forged in the late 1990s, was supposed to act as a profit-sharing scheme for short-haul European traffic on the Star Alliance network, it has struggled to compete with the changing environment in the face of strong point-to-point growth from budget carriers.

"The better we perform, the more [money] we have to send to this joint venture," says Lindegaard.

He describes the deal as a "stupid contract" but, although clearly wanting to be free of the agreement, concedes that SAS Group will be able to do nothing until it expires in 2007.

SAS Group holds a 20% share of BMI which the Scandinavian company has expressed a willingness to sell.

Source: Flight International