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Scandinavian Airlines

SAS asks for cash, plans job cuts

Feb 09, 2010

STOCKHOLM - Scandinavian airline SAS asked shareholders for 5 billion Swedish crowns ($672 million) to keep it flying and reported a bigger-than-expected quarterly loss, sending its shares diving to an 18-year low.

SAS, half-owned by the governments of Denmark, Norway and Sweden and one of the worst hit by the crisis in the aviation industry, said the rights issue was needed to allow it to take out yet more costs as it battles back into profit.

The sovereign shareholders plan to take up their rights, but a group of low-cost carriers -- which lodged a complaint with the European Commission after an earlier 6 billion crown SAS cash call in November, 2009 - criticized the move as anti-competitive.

EasyJet branded it "illegal state support."

SAS said it would pare another 2 billion crowns from costs, on top of more than 5 billion already promised under its "Core SAS" program, itself the latest in a long line of attempts to make the airline competitive with low-cost fliers.

Weak demand and falling passenger numbers led to a fourth-quarter pretax loss of 1.52 billion crowns, compared with a forecast loss of 506 million in a Reuters poll and the third loss of the past four quarters.

Sweden, which has the largest government stake in SAS, said it was not opposed to selling if market conditions allowed.

"We see no particular value in owning SAS," Enterprise Minister Maud Olofsson told a news conference, adding that she saw no need for further cash calls.

SAS shares were down 23 percent by 1315 GMT, hitting their lowest level since 1992 and valuing the company at less than 7 billion crowns, as analysts took a dim view of the report.

"The fourth quarter is very, very disappointing from my view," said Jacob Pedersen, analyst at Sydbank. "Of course, they have to enhance their efficiency programs and make some additional cost savings in Core SAS, and that also costs some money and that all brings us to the rights issue."

SAS said the rights issue was supported by its largest shareholders and a consortium of underwriting banks.


Last year was the worst ever in terms of airline industry demand, according to the International Air Transport Association. IATA believes the bottom has passed but 2010 offered enormous challenges with the downturn forcing companies and individuals to slash travel budgets.

SAS was struggling before the financial crisis with an aging fleet, higher costs than many rivals, and unions opposed to its efforts to streamline the business.

Heavily dependent on revenue from business class tickets, SAS was caught napping by the arrival of budget carriers on e short-haul routes where it generates the bulk of its sales.

"They have been slow in transforming to the new competitive environment," said Brian Borsting, an analyst at LD markets. "We are still seeing low-cost companies intensifying their presence on key routes."

SAS also reported a 5.1 percent fall in traffic for January, but said it saw signs demand was stabilizing.

"It is very important that SAS does not lose momentum in the cost-cutting because otherwise the belief in SAS ever making a profit starts to disappear," Borsting said.

In January, IATA predicted airlines would lose $5.6 billion this year following an estimated $11 billion in loss in 2009.

Signs from airlines so far have been mixed. Last week, British Airways posted a surprise third-quarter operating profit, helped by cost-cutting.

But German carrier Lufthansa has sought to lower expectations for 2010 and Finnish carrier Finnair forecast a first-quarter loss after a weak fourth quarter.

SAS asks for cash, plans job cuts
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