Scandinavia’s biggest airline SAS has just filed for bankruptcy protection

Jul 5, 2022

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Scandinavian Airlines (SAS) has filed for bankruptcy protection, the latest development to roil the European aviation sector that’s already been hit by staffing issues and a series of strikes.  

The filing at SAS coincides with its pilot strikes over better pay and working conditions, which are expected to ground around half of the airline’s flight operations at various points this month.

In anticipation of heavy losses, the Nordic region’s biggest carrier has taken the option of Chapter 11 bankruptcy protection in the U.S. to “accelerate” restructuring plans.

SAS has vowed to continue operations through the Chapter 11 restructuring process, which is common. Still, more immediately, the pilot strike has caused a major operational disruption. By 4:15 p.m. in Stockholm on Tuesday, 236 of the airline’s flights had been cancelled for today — 78% of its schedule, according to FlightAware.

Plans for SAS to file for bankruptcy had already been in the works following economic hardships post-pandemic, but the airline’s current strike strife forced bosses to act sooner.

Following the announcement CEO Anko van der Werff said: “We are confident that this process will enable us to become a stronger and even better airline for our customers, and a much healthier business partner in the years to come.” 

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“The date [of filing for bankruptcy] has been brought forward because the company now needs to be prepared against further liquidity loss”.

So what does this mean in layman’s terms? Known as “reorganisation” bankruptcy, Chapter 11 bankruptcy is a way for companies already in the red or facing major losses to restructure operations. The goal of which is to find a way out of their current financial situation without shutting down day-to-day business.

All three of the largest U.S. airlines have operated through Chapter 11 restructurings in the 2000s. Each kept operating relatively normally during the process. More recently, Aeromexico, Avianca and LATAM are among carriers that have sought Chapter 11 protections as the emergence of COVID-19 delivered its financial blow to the industry.

(Photo by Ben Smithson/The Points Guy)

SAS’ own route through the courts could well involve liquidating assets to repay creditors or downsizing operations as the case moves forward. It’s a costly and complex procedure, and, according to SAS officials, could take nine and 12 months to fully process.

However, by restructuring now, the airline has bought itself time to ensure staff and passengers are kept in the skies throughout the hectic summer season and into 2023 – which may provide some comfort to the thousands of passengers currently on tenterhooks.

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“Through this process, SAS aims to reach agreements with key stakeholders, restructure the company’s debt obligations, reconfigure its aircraft fleet, and emerge with a significant capital injection,” the airline said in a statement.

SAS, which is part-owned by the governments of Sweden and Denmark by up to as much as 30%, plans to convert 20 billion Swedish crowns (£158.5 bn) of debt into shares with a goal of raising around £835m in equity.

A target that might be easier said than done with SAS shares taking a nosedive by as much as 13 percent since the news broke.

(Photo by Ben Smithson/The Points Guy)And if further strikes go ahead the situation could depreciate even further. According to industry insiders, more strike action could cost around 100 million Swedish Crowns per day, equating to roughly £8m on top of existing losses.

As it stands, SAS faces record disruption this month after talks broke down with the pilots’ unions. Around 900 pilots will be withdrawn across Scandinavian and international flights, which is set to affect over 30,000 passengers per day.

SAS bosses, who branded the strike action as “reckless,” have said that if customers cannot get onto alternative flights, they can apply for a refund or rebook at a later date, even seeking reimbursement for the airline if left out of pocket by an alternative means of travel.

At the end of last month, Unite, the U.K.’s biggest trade union, averted strike action after securing a “game-changing” pay rise for SAS crew employed by CAE Crewing Services Ltd – an incremental 18% wage hike by March 2023. 

For now, it’s best to be proactive, flexible and plan any summer trips wisely.

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