SAS Moves Closer to Major Restructuring of Operations

 - December 3, 2012, 1:07 PM
Stockholm-based SAS will undergo a dramatic restructuring to help secure its long-term financial stability. (Photo: SAS)

Ailing Scandinavian carrier SAS will reduce its workforce by 6,000 employees, sell off its Widerøe regional subsidiary and centralize administrative functions in Sweden in return for an increased credit line from major shareholders and banks of 3.5 billion Swedish kronor ($525 million) through March 2015. The new revolving credit facility has yet to be approved by the parliaments of Sweden and Norway.

The dramatic restructuring of the airline, which is partly owned by the governments of Sweden, Norway and Denmark, was contingent on SAS’s concluding labor agreements with eight unions. On November 19 the SAS board said those agreements were secured, allowing the carrier to move forward with measures outlined in the “4Excellence Next Generation” restructuring plan to improve its long-term financial stability. The carrier expects the plan will produce 3 billion kronor (SEK) in annual cost savings and another SEK 3 billion through asset sales.

SAS has been unprofitable since 2007 and faced rising costs and increased competition from both long-haul airlines and regional low-fare carriers. The 4Excellence plan was originally announced in September last year. In an announcement on November 12, the airline’s board cited the need for “further improvements” and tied the credit line increase to the timely conclusion of the labor agreements. “In a challenging environment for airlines, SAS must take decisive action to address its cost structure, improve its capital structure on a long-term basis, and take steps to reduce the negative impact on equity in 2013 due to changed pension accounting regulations,” the board said.

The main features of the restructuring plan call for SAS to sell the Norwegian regional airline Widerøe; outsource its ground-handling operations in Scandinavia; centralize its administration in Sweden (its headquarters are at Stockholm-Arlanda airport); and convert employee pensions to a defined contribution plan. The new labor agreements reduce basic pay by 15 percent. “From now on, all SAS cabin crew and cockpit crew will receive the same conditions, fully reflecting the conditions offered in the market in terms of pay, pensions and working hours,” the airline states. As a result of outsourcing work, selling assets and laying off some 800 administrative employees, the airline’s workforce will shrink to 9,000 employees from 15,000.

Despite downsizing, SAS said it plans to expand its network of destinations by 15 percent in the next two years and enlarge its 212-aircraft fleet by 65 airplanes over several years. The additional aircraft include 30 new Airbus A320neos and nine Boeing 737NGs. The airline carried 27 million passengers last year.