SAS AB ("SAS" or the "Company") announces that it is taking the next step in its
comprehensive business transformation plan known as SAS FORWARD by initiating a
process to solicit equity investment in the reorganized SAS. As part of its
chapter 11 process, SAS will today file a motion (the "Equity Solicitation
Procedures Motion") with the U.S. Bankruptcy Court for the Southern District of
New York (the "Court"), seeking approval of procedures that will govern the
Company's equity solicitation process. The Company has previously stated that
it aims to raise at least SEK 9.5 billion of equity financing. However, the
final amount of equity financing raised will depend upon the competitive equity
raise process along with the Company's ongoing ability to generate additional
liquidity.
Through these procedures, SAS will run a competitive and broad solicitation
process to secure the best available terms and conditions for new equity
capital. Potential investors can place bids to take a lead position or be paired
with other investors in acquiring equity interests of the reorganized SAS. SAS
will continue to operate the business and serve its customers as usual
throughout this process.
Given the substantial debt reductions or conversions anticipated (i.e.,
approximately SEK 20 billion in claims) combined with the need for substantial
new equity capital, SAS expects that there will be only modest recovery for
general unsecured creditors and little or no recovery for subordinated unsecured
creditors upon emergence from the chapter 11 process. Further, given that
shareholders are lower in priority of payment in relation to creditors, there is
currently an expectation that there will be no or very little value for existing
shareholders in SAS AB at the end of the Company's restructuring proceedings.
SAS is also announcing updated financial projections (the "Updated
Projections"), based on a revised business plan which reflects optimized network
and route planning, improved expectations on demand and capacity, agreements
with lessors that allow for increased cost savings, and better developments in
the Company's cash position during the winter. The key changes in the Updated
Projections concern the long-term revenue and EBT forecasts, as well as the
short-term liquidity forecast. For fiscal year 2026, revenues are now expected
to reach up to approximately SEK 58 billion, vs. SEK 49 billion previously set
forth in projections disclosed by the Company through its September 30, 2022
press release (the "Prior Projections"). Under the Company's Updated
Projections, the Company expects to produce earnings before tax ("EBT") margin
of approximately 9-10 percent in fiscal year 2026 (vs. 6-8 percent in the Prior
Projections). In the Prior Projections, the Company had forecast the fiscal
year 2023 year-end liquidity level[[[1]]] to reach 15 percent . Under the
Updated Projections, the liquidity level is expected to significantly exceed
that liquidity level (subject to actual Company financial performance, actual
size of equity capital raise, any changes in future fleet plan or other material
capital expenditures, among other factors). The liquidity level is expected to
remain at such higher levels throughout the Updated Projections period.
[1] Cash and cash equivalents divided by revenue (rolling 12 months).
Anko van der Werff, President and Chief Executive Officer of SAS, says:
"With the equity raise process we are initiating today, we are taking the key
next step in SAS FORWARD, our transformation plan that aims to improve our
financial strength, secure long-term competitiveness and fortify our position as
Scandinavia's leading airline. We will commence a competitive and broad
solicitation process to secure equity capital that will help drive our airline
forward and facilitate our emergence from the chapter 11 process".
SAS' strategy and market
SAS aims to be the first choice for all Scandinavian travelers, with the
strongest network both within Scandinavia and from Scandinavia to the rest of
the world. With a population that has higher GDP per capita and travels
frequently, Scandinavia has long been one of the most stable and attractive
markets for air travel in Europe. SAS is a leader in this market with positive
brand affiliation and capacity strength. Through an improving cost structure
and by adding new mid-size aircraft to the fleet, the Company has opportunities
to maintain its market position while also driving revenue growth and
profitability.
SAS' strategy is to meet the needs of the Scandinavian business and leisure
market with a combination of efficient service, competitive offerings, and a
leading position in sustainable air travel. SAS aims to strengthen its market
position in the segment for customers who want a high-quality offering with a
competitive value proposition, while retaining its leadership in the premium
segment. A restructured network is expected to result in profitable increases
in capacity over time.
Progress on the SAS FORWARD transformation plan
Since announcing the SAS FORWARD plan on February 22, 2022, SAS has made
significant progress in many areas, some of the key items of which are described
below.
State support
On June 7, 2022, the Swedish government announced its intention to support the
conversion of its debt into equity, and that it will not contribute with new
capital. On June 29, 2022, the Norwegian government also announced its intention
to, under the right circumstances, support the conversion of its term loan to
equity and that it will not contribute with new capital. On June 10, 2022, the
Danish government announced its intention to support, subject to certain
conditions, e.g., burden sharing and sufficient shareholder protections, the
conversion of its debt to equity and that it would be willing to make an
investment in the Company that would allow Denmark to (i) obtain an ownership
stake in SAS between its current ownership level of approximately 21.8 percent
and up to approximately 29.9 percent and (ii) retain certain government rights.
Labor negotiations
As previously announced, SAS reached agreements with its pilot unions on July
19, 2022 for new 5.5-year collective bargaining agreements. SAS also reached
agreements with all of its other unions except for its cabin crews in the
following months of 2022. On November 29, 2022 SAS reached agreements with its
Norwegian cabin crew unions. Negotiations with the remaining cabin crew labor
unions are currently being conducted.
Lessor negotiations
On January 13, 2023, SAS announced the conclusion of lessor negotiations, an
important step in the chapter 11 process, having reached agreements with a total
of 15 lessors, representing 59 aircraft. Through amended lease agreements, SAS
has achieved annual cost savings exceeding SEK 1.0 billion in reduced aircraft
lease expenses and annual cash flow items relating to aircraft financing.
However, these savings will only be reflected in the Company's financial
results upon emergence from the chapter 11 proceedings.
Other savings
In February 2023, the Company reached a multiyear agreement renewal with
Amadeus, a key travel technology provider for SAS. The agreement will deliver
efficiency within Distribution & IT, in line with the target set forth in the
SAS FORWARD plan, whilst keeping SAS at the forefront of technology evolutions.
Updated Projections
On September 30, 2022, SAS announced additional details on the SAS FORWARD plan
including financial projections. In the Updated Projections announced today,
SAS expects that revenues will exceed SEK 40 billion in fiscal year 2023 and
return to pre-Covid levels in fiscal year 2024, which is one year earlier than
in the Prior Projections. Improved long-term expectations with respect to
passenger demand and a faster capacity rebound, including more widebody
aircraft, allow higher revenue than in the Prior Projections. Under the Updated
Projections, revenues in fiscal year 2026 are now expected to reach up to
approximately SEK 58 billion, compared to SEK 49 billion in the Prior
Projections.
Furthermore, SAS expects to reach an adjusted negative EBT [1] of approximately
SEK 4-5 billion in fiscal year 2023, given that many of the cost efficiencies of
the SAS FORWARD plan are either ramping up over fiscal year 2023, or have been
implemented but cannot be recognized in the Company's financial results until
post emergence from chapter 11, including cost savings resulting from the fleet
restructuring. The adjusted EBT in fiscal year 2023 is unchanged in the Updated
Projections compared to the projection that SAS announced on February 24, 2023.
SAS expects to reach positive EBT in fiscal year 2024, increasing to
approximately SEK 5-6 billion in fiscal year 2026, corresponding to an EBT
margin of approximately 9-10 percent, when the SAS FORWARD plan is expected to
have been fully implemented. In the Prior Projections, the EBT figure and margin
for fiscal year 2026 were approximately SEK 3-4 billion and 6-8 percent,
respectively. The improvement in EBT amounts and EBT margin is a result of
increased projected revenue, mainly due to the increase in assumed demand and
capacity, as well as a reduction in financing costs resulting from an assumption
that some of the Company's future fleet can be self-financed (acquired without
debt or lease financing).
In 2023, debt or debt-like items of SEK 20 billion are expected to have been
converted into equity of the reorganized Company or otherwise substantially
reduced in value to such creditors through the chapter 11 process. After
emergence, SAS expects its net-debt to be at approximately SEK 17 billion
(majority of debt comprised of aircraft debt and lease liabilities). Assuming
successful completion of the SAS FORWARD plan, SAS expects to attain a strong
financial position and expects to be close to net debt-free by the end of fiscal
year 2026.
Assuming a raise of SEK 9.5 billion, as modified by actual liquidity results of
the Company and its liquidity demands upon exit, SAS also expects its liquidity
level to significantly exceed the estimated 15 percent contained in the Prior
Projections. This is as a result of stronger cash generation over this past
winter due to strong sales and revenue performance. That liquidity is expected
to remain at such higher levels throughout the Updated Projections period
(subject to actual Company financial performance, actual size of equity capital
raise, any changes in future fleet plan or other material capital expenditures,
among other factors).
The updated financial projections are premised upon a successful progression and
execution of the SAS FORWARD plan, and a demand recovery in line with
expectations as described above. Furthermore, assessments of the updated
financial projections are based on the following unchanged foreign exchange
assumptions: an exchange rate of 10.22 SEK/USD through the end of fiscal year
2023, 9.48 SEK/USD for fiscal year 2024, and 8.75 SEK/USD for fiscal year 2025
and beyond