Explainer: Who will save struggling airline SAS?

Copenhagen Airports A/S

27/09/2023 12:30

By Johannes Birkebaek and Jacob Gronholt-Pedersen
       COPENHAGEN, Sept 27 (Reuters) - Scandinavia's biggest
airline SAS  SAS.ST  could announce as early as this week the
result of an equity fundraising from potential investors looking
to rescue the loss-making carrier.
    SAS filed for U.S. bankruptcy protection last year as it
struggled to slash costs and debt amid strikes by pilots.
    The airline, which in its glory days in the 1980s was named
the world's best airline by an industry group, has for more than
a decade struggled to compete with low-cost rivals in Europe's
fragmented aviation sector.
    Now, having been hammered by plunging demand and travel
restrictions during the pandemic, SAS follows other national
carriers such as Italy's ITA Airways and Portugal's TAP in
seeking new investors.
    SAS hopes to raise 9.5 billion Swedish crowns ($863 million)
in new equity and convert 20 billion crowns of debt into equity.
    
    WHO ARE THE POTENTIAL BIDDERS?
        The Danish state has said it is willing to increase its
stake in SAS to around 30% from 22% currently, and that it is
looking for one or more shareholders to take a majority stake.
    Any deal would require SAS to maintain Copenhagen as a key
passenger hub, Denmark's finance ministry has said.
    Other potential bidders include U.S. asset manager Apollo
Global Management Inc  APO.N , which last year provided SAS with
$700 million in bridge financing to see it through the
bankruptcy proceeding. Apollo may convert the loan into equity
and thereby become a major shareholder.
    A source familiar with the matter said before Monday's
bidding deadline that Apollo was in "pole position" to become
majority shareholder and that it was aiming to take a 70% stake.
    That would be a test of European Union rules, which prevent
more than 50% of an EU airline being held outside the bloc of 27
members.
    Apollo has argued that a large part of its capital
originates from Europe-based investors, but the issue remained
unsolved, the source said. 
    
    WHAT ABOUT SWEDEN AND NORWAY?
    The Swedish government, which also holds a 22% stake, has
injected over 8 billion crowns into the company but has rejected
SAS' plea for more cash.
    Raising new equity would automatically reduce Sweden's stake
in the airline. Sweden said last year it would look to exit the
airline completely in the long term.  
    Norway's government has also said it would not contribute
any new equity. The country, which sold its remaining 10% stake
in 2018 but remains a large creditor, said last year it would
support a plan to turn the loans into equity but did not plan to
be a long-term shareholder. 

    WHO ELSE MAY BID? 
    Apollo and the Danish state are likely to bring in several
smaller shareholders, according to Sydbank analyst Jacob
Pedersen.
    They could include Sweden's family-owned Wallenberg
foundation, which currently holds a 3.4% stake in SAS, or Danish
pension funds, he said. Private Swedish investor Gerald Engstrom
holds 0.8%.
    German airline group Lufthansa  LHAG.DE  has previously been
associated with buying into SAS, but Pedersen said bids from
other European carriers were unlikely. Lufthansa is in the
process of taking over a large part of ITA Airways.
    
    WHAT HAPPENS FROM HERE?
        The deadline for submitting final bids was Monday. 
    SAS is due to announce the winning bid on Sept. 28, unless
there are multiple qualified bids. In that case, SAS may hold an
auction on Oct. 2 with the result due on Oct. 5. 
    EU authorities will need to approve the new ownership
structure before a deal can be finalised. Once that is done, SAS
can begin proceedings to exit chapter 11 bankruptcy protection,
which could be late this year or next year, Pedersen said. 
    It is not clear if SAS will be taken off the Swedish stock
market after exiting bankruptcy protection. Bidders have been
required to say whether or not they want to keep the company
listed. 
    ($1 = 10.8100 Norwegian crowns)
    ($1 = 11.0082 Swedish crowns)

 (Reporting by Johannes Birkebaek and Jacob Gronholt-Pedersen
Editing by Mark Potter)
 ((Johannes.Birkebaek@thomsonreuters.com;))