Explainer: Why the survival of Scandinavian airline SAS hinges on Denmark

Copenhagen Airports A/S

28/06/2022 12:19

By Jacob Gronholt-Pedersen and Nikolaj Skydsgaard
    COPENHAGEN, June 28 (Reuters) - Swedish loss-making airline
SAS  SAS.ST  is fighting for survival, the latest carrier to hit
financial straits due to hefty debts, stiff competition and
soaring costs, even as the travel industry recovers from the
pandemic.
    SAS has said a restructuring plan announced in February
depends on it raising 9.5 billion Swedish crowns ($946
million)in cash and converting 20 billion crowns of debt to
equity.
    Many governments across the world helped shore up their
national carriers during the pandemic. But Sweden and Denmark,
which both have 21.8% stakes in SAS, are taking very different
approaches to the Scandinavian brand.
    Denmark has said it is willing to increase its ownership and
write off debt, but Sweden has refused to inject more money.  
        
    WHY DOES SAS MATTER SO MUCH TO DENMARK?
    SAS AB, formally known as Scandinavian Airlines System
Denmark – Norway – Sweden, is headquartered in Stockholm, but it
uses Copenhagen Airport  KBHL.CO , the largest in Scandinavia,
as its main hub.
    Denmark's Finance Minister Nicolai Wammen has said SAS is
important for the Danish economy and ensuring good travel
connections from the Nordic country to the rest of Europe as
well as long-distance flights to other continents. 
    SAS directly employs almost 7,000 people, equally shared
between Denmark, Sweden and Norway. Prior to the COVID-19
pandemic, the company underpinned 20,000 jobs in the
Scandinavian region, 6,800 of those in Denmark, according to a
2019 report by Copenhagen Economics commissioned by SAS.
    SAS accounted for almost a third of direct and indirect
flights to Denmark, according to the report. It also accounted
for 82% of transfer air traffic at Copenhagen airport in 2017.
    To Danes, SAS has traditionally been linked to a sense of
pride and even a collective sense of ownership as it evolved to
become a leading premium carrier in the decades following its
creation in 1946.
    
    WHAT HAS GONE WRONG?
    At its height in the 1980s, SAS was named the world's best
airline by an industry group. But with the emergence of low-cost
rivals such as Ryanair  RYA.I  things began to change. 
    The company has been in nearly constant financial trouble
since the turn of the century, and last year lost 6.5 billion
Swedish crowns ($638 million), with revenue just a third of
pre-pandemic levels.
    On consumer review site Trustpilot, SAS is rated 1.5 out of
five stars, just above Ryanair's 1.4. 
    Adding to SAS' trouble, some 1,000 SAS pilots in Denmark,
Norway and Sweden plan to go on strike on June 29 over
disagreements over wages and cost-cutting plans.  urn:newsml:reuters.com:*:nL8N2XW3MS
    
    WHAT DOES DENMARK WANT?
    Denmark's parliament agreed this month to write off some of
SAS' debt and convert some more into equity, as well as to
inject new cash. That could increase Copenhagen's stake in the
airline to up to 30%.
    But the government has made it a condition of the cash
injection that SAS gets private investors to participate too. 

    IS THIS A PROBLEM?
    While the Danish government has promised to stay out of
day-to-day business, it wants to protect its interests. 
    Denmark wants "influence over the elements in SAS that are
central to maintaining SAS' strong foothold in Denmark and
contribution to Denmark's international accessibility," the
finance ministry said this month. 
    That may deter large investors and consortia that might have
been interested in making sweeping changes at SAS, according to
Sydbank analyst Jacob Pedersen.
    
    WHAT IS SWEDEN DOING? 
    Sweden, which has already injected more than 8 billion
Swedish crowns into SAS over recent decades, has taken a harder
line on new financing. 
    Stockholm said this month it would not provide new cash to
SAS, though it approved the debt-for-equity plan.  urn:newsml:reuters.com:*:nL8N2Y83TZ 
    If the airline does raise new equity, this will reduce
Sweden's stake. The country has said it wants to exit SAS
completely in the long term.  urn:newsml:reuters.com:*:nL1N2XU08A
    
    HOW ABOUT NORWAY?
    Neighbouring Norway's government sold its remaining 10%
stake in SAS in 2018, arguing there was no need for the state to
own airline stocks.
    Still, it is a major creditor with 1.5 billion Norwegian
crowns ($153 million) in loans made during the pandemic.
    On Tuesday, Oslo said it would support SAS' debt-to-equity
plan, under certain conditions, but did not plan to remain a
long-term stakeholder.  urn:newsml:reuters.com:*:nL8N2YF13F
    ($1 = 10.0434 Swedish crowns)
    ($1 = 9.7801 Norwegian crowns)

 (Reporting by Jacob Gronholt-Pedersen and Nikolaj Skydsgaard,
additional reporting by Gwladys Fouche. Editing by Mark Potter)