[AnthonyDunn]

@ VintageKrug – 14/11/2012 07:35 GMT

Actually VK, you have a very good point and one that I will remember should I ever get into another on-board discussion with BA C/C about their legacy T&Cs…

[rferguson]

It’s being reported in the Norwegian media today that SAS will announce the cull of 1000 jobs, selling off of SAS ground handling and the reduction of remaining staff salaries of 15%. Another lifeline for a dying carrier.

SAS has around 40 different unions in three countries they need to negotiate with.

The article is in Norwegian but i’m happy to translate.

With the likes of Norwegian Airlines launching long haul flights with it’s entire crew based in Thailand on local Thai contracts how can SAS compete with such a cost base?

[Bucksnet]

Post the link with Google Translate and then people can change it into whichever language they use.

P.S. Take the apostrophe out of it’s before VK notices.

[RoadKing]

Latest news are that the Danish pilot union will refuse.

From their angle, I can understand that it is not fun to cut ones salary and at the same time work more.

From the outside perspective, I realize that there is just this limit to how much the owners are willing to sponsor golden retirement
agreements and a pay way beyond the industry standard.

Danish pilots should realize that they earned these benefits during a golden age where they were given monopoly by the governments and whomever wanted to fly in the Nordic countries would have to pay out of the eye.

No matter what SAS sell and how much the save on no food, no drinks, no nothing and contributions from owners, they cannot make it in the long run if they cannot make the daily run profitable. When they have 3 times more employees per passenger than the competitor, it is quite obvious something must be done.

When those employers even have better salary and retirement benefits, it is no question any more. Something, someone must give.

So, the story is simple. The employees give in, or there is no company. I really don’t understand this resistance, if it is so bad, why don’t they just find another job?

Ah… Perhaps that is not so easy… Might be a reason for that.

[transtraxman]

It is true that turkeys do not vote for Christmas. However, it is also stupid for the turkeys to turn a blind eye to the fact that Christmas is approaching and do not accept alternatives, or else.

May I extend this reading to Iberia as well.

[Senator]

Dear all,

As a Norwegian national and someone who can translate the ongoing issues regarding SAS, let me try to state some of the “facts” as they are becoming available. If I have time later in the week, I will try to summarise the analysis of why SAS is in this situation. It would also be good if we could stay on topic for once, and not make this (yet) another thread on BA and Willie Walsh.

SAS has a proud history. However, since 2000, the company has only been profitable for two years The accumulated losses are massive. Since 2000, SAS has shed 20,000 employees (from 35,000 to 15,000) and divested 80b SEK worth of assets (roughly £8b at current F/X). The company’s issues have been both internally driven and externally driven.

Since its start, SAS has operated under a principle know as “3/7, 2/7, and 2/7”. The three sovereign governments of Sweden, Norway and Denmark own 50% of the group. This 50% was split:
3/7 Sweden
2/7 Denmark
2/7 Norway
This ownership share had some obscure consequences. For example, a long-haul flight from CPH-NRT should have staff split along does lines as well. However, this has been slowly abandon. A further challenge is that there are 37 different unions spread across the three countries which needs to be dealt with. Finding one collective agreement is impossible.

I’ll try to explain more background later this week, but the current crisis is triggered by two factors:
** New EU accounting rules for pensions
** Credit facility renewal

The holding company SAS Group which is listed in Stockholm (primary) elected to shorten the Fiscal year 2012 to Jan-Nov because by November, 2013 new accounting rules will come into effect. Re-stating the pension liabilities would wipe out the equity completely, making SAS insolvent. By changing the accounting year, it buys itself time.

At the same time, roughly 4b SEK of debt are due in June next year.. For financial planning, SAS wants to know if they can be extended. Of course, no bank wants to extend this with the uncertainty regarding pensions.

The good news is that SAS Group had a profitable Q3. They have slowly been able to raise revenue and lower cost. However, not fast enough.

Last Friday, SAS was planning to release Q3 numbers. However, it announced it would be delayed until Monday this week. Over the weekend, a consortium of banks agreed to extend the credits with two conditions:
1. State guarantees (must be approved in Brussels)
2. A true plan to solve long-term profitability

Over the weekend, the BoD and the executives came up with a plan to shed about 3bn SEK more in assets:
Wideroe (WF)
Scandinavian Ground Service (Handling)
Real estate
Engines

Furthermore, SAS is looking for 3bn SEK of structural savings beyond the current plan. it has given a deadline for this Sunday to have all agreements in place.

My analysis is that the management and owners are serious about forcing the unions to accept new terms. One can argue about how this is done; it is close to blackmail. Nevertheless, there is a fair risk that this may not end well.

All of the strategic issues, I will try to summarise later. I will post a second time with the SAS announcement from this past Monday.

[Senator]

Press release from this past Monday

SAS launches comprehensive plan to improve profitability and secure long-term financial preparedness – new collective agreements must be reached in the near future

• 4Excellence delivers: Income before tax and nonrecurring items of MSEK 607 for the third quarter
– Passenger revenue: +9%
– Unit cost: -6.1%
• New aggressive plan – 4Excellence Next Generation (4XNG) – which addresses SAS’s structural and financial challenges
– Measures with an annual positive earnings effect of approximately SEK 3 billion; including new collective agreements with such features as changed pension conditions and a significant reduction in administration
– Divestment of assets with a liquidity effect of about SEK 3 billion
– The new pensions terms considerably reduce the negative impact of amended reporting rules for pensions.
• Core shareholders and banks place credit facilities of SEK 3.5 billion at the Group’s disposal until March 2015, conditional on full implementation of the 4XNG plan, new collective agreements being reached and that parliamentary approval is received.
• Accordingly, the company’s existence is subject to the new collective agreements being reached
• The Board unanimously supports the presented plan and recommends that all employees give it their full backing. Board will meet again on Sunday November 18, 2012 to decide if conditions for the implementation of the plan exist

July-September 2012

• Revenue: MSEK 11,096 (10,616)
• Number of passengers: increased by 315,000 (4.5%)
• Passenger revenue adjusted for currency and nonrecurring items: increased by 9.4%
• Income before tax and nonrecurring items: MSEK 607 (298)
• EBT margin before nonrecurring items: 5.5% (2.8%)
• Income before tax: MSEK 568 (276)
• Net income for the period: MSEK 434 (214)
• Earnings per share: SEK 1.32 (0.65)
• Cash flow from operating activities: MSEK -123 (232)

January-September 2012

• Revenue: MSEK 32,079 (31,248)
• Number of passengers: increased by 865,000 (4.2%)
• Passenger revenue adjusted for currency and nonrecurring items: increased by 5.1%
• Income before tax and nonrecurring items: MSEK -305 (155)
• EBT margin before nonrecurring items: -1.0% (0.5%)
• Income before tax: MSEK -193 (448)
• Net income for the period: MSEK 25 (392)
• Earnings per share: SEK 0.08 (1.19)
• Cash flow from operating activities: MSEK 1,768 (396)

Future outlook and the Group’s continued operations

In the report for the second quarter of 2012, it was announced that SAS would not present a profitability forecast for full-year 2012 due to the uncertain economic trend, jet-fuel prices, exchange rates and intense competitive pressure. In the context of these uncertainties and to address SAS’s structural and financial limitations, the 4Excellence Next Generation (4XNG) plan will be implemented yielding an annual positive earnings effect of approximately SEK 3 billion, of which SEK 1.5 billion is anticipated in the 2012/2013 fiscal year.
With only one non-accounted month remaining in the shortened 2012 fiscal year (Jan-Oct), the assessment is that the SAS Group will report slightly negative income before tax and nonrecurring items. As a consequence of the measures in 4XNG, restructuring costs and nonrecurring items will amount to approximately SEK 1.5 billion, of which approximately SEK 0.9-1.0 billion will be charged to the 2012 fiscal year. The above future outlook and the extension of the credit facilities are conditional on new collective agreements being entered into. The company’s existence is dependent on these collective agreements being reached in the near future.

Comments by the CEO

“The way is now being cleared for a new, strong and competitive SAS.”

SAS is facing major and necessary changes. 4Excellence Next Generation enables us to establish an entirely new platform for SAS’s future. It is a comprehensive plan that places significant demands on the entire organization, but which is necessary to address the conditions prevailing in the market. It is a plan that will also ensure that SAS will continue to play a key role in the lives of many millions of people in Scandinavia and enable it to achieve sustainable profitability and a healthy return. We now have the financial prerequisites necessary to implement the plan as a result of the credit facilities that were renegotiated with banks and our principal owners. However, the credit facility is conditional upon the full implementation of the plan and new collective agreements being reached in the near future.

4Excellence Next Generation (4XNG)
The new plan is highly comprehensive and involves far-reaching cost savings of about SEK 3 billion, in addition to activities already in progress in 4Excellence. The 4XNG plan is not only a savings program, but also provides opportunities for increased flexibility, reduced complexity and lower costs.
This will enable us to efficiently compete in the leisure travel market while also maintaining competitiveness in what is, for us, the important business travel market.

The plan’s main areas encompass, for example, new collective agreements for flight deck and cabin personnel with salary and employment conditions on market terms, thus facilitating significant efficiency improvements when planning and setting schedules. Furthermore, new defined-contribution pension solutions will be introduced for most employees, which will reduce the negative effect on equity that will arise from application of the amended IAS19 by approximately SEK 2.8 billion. Within administration, activities will be centralized to Stockholm and further outsourcing will take place, entailing a decrease in the number of staff by about 800 full-time equivalents. In addition, plans are in place to outsource Ground Handling and other parts of customer service, in addition to savings and efficiency enhancements within IT.

The combined objective of these measures is to deliver a substantial reduction in the unit cost.

Divestment of assets corresponding to about SEK 3 billion The plan also encompasses the divestment and financing of assets to reduce the company’s long-term dependence on credit facilities. The divestments and financing are expected to have a positive impact on liquidity of about SEK 3 billion. This includes Widerøe, SAS Ground Handling, as well as properties and other assets.

Expanded credit facility secures financial preparedness We have reached an agreement to expand the existing credit facility of SEK 3.1 billion to SEK 3.5 billion and also extend its term until March 31, 2015. SAS’s bilateral facilities amounting to SEK 1.25 billion will be terminated as these provide limited benefit at a high level of financial expense. The new facility is conditional upon new collective agreements being reached. Together with SAS’s cash and cash equivalents, this facility provides us with the financial preparedness required while we implement our divestments and achieve an earnings effect from the cost reductions.

The credit facility is provided by seven banks, the Scandinavian states and KAW.
In certain cases, the participation of the Scandinavian states is subject to a parliamentary decision.

Positive third quarter
In a very difficult and competitive market, the positive trend in the third quarter is confirmation that the implementation of the 4Excellence strategy is generating results. As a result of the execution of 4Excellence, SAS has been able to increase passenger revenue by 9% and reduce the unit cost (CASK – fuel and currency-adjusted) by 6% in the third quarter of 2012. Our income before tax and nonrecurring items for the third quarter improved by MSEK 309 to MSEK 607.

Future outlook and the Group’s continued operations In the report for the second quarter of 2012, it was announced that SAS would not present a profitability forecast for the full-year 2012 due to the uncertain economic trend, jet-fuel prices, exchange rates and intense competitive pressure. In the context of these uncertainties and to address SAS’s structural and financial limitations, the 4XNG plan will be implemented yielding an annual positive earnings effect of approximately SEK 3 billion, of which SEK 1.5 billion is anticipated in the 2012/2013 fiscal year. With only one non-accounted month remaining in the shortened 2012 fiscal year (Jan-Oct), the assessment is that the SAS Group will report slightly negative income before tax and nonrecurring items. As a consequence of the measures in 4XNG, restructuring costs and nonrecurring items will amount to approximately SEK 1.5 billion, of which approximately SEK 0.9-1.0 billion will be charged to the 2012 fiscal year.
The above future outlook and extension of credit facilities are conditional on new collective agreements being entered into. The company’s existence is dependent on these agreements being reached in the near future.

Stockholm, November 12, 2012

Rickard Gustafson
President and CEO

[AMcWhirter]

If SAS folds then what would happen to the CPH hub ?

SAS is the dominant carrier at CPH and so this would be a major set back for Danish aviation as the other two Scandinavian countries might look to form their own carriers which would operate from ARN and OSL.

Of course, not having SAS in CPH would be a boon for foreign carriers like AF/KL, BA and LH not forgetting the Gulf airlines who are expanding into Scandinavia.

[Senator]

LondonCity, obviously with close to 40% share of traffic at CPH, it would be a massive impact short term.

[RoadKing]

I think it would be the end of CPH as a hub. Denmark has little domestic traffic and OSL is almost as big as it already. With the proximity to large hubs as FRA, the alternative are direct routes.

@Senator: That SAS has to fight airlines employing staff from low cost countries is not the exclusive reason they struggle. Compensation has been wild in that company, at the expense of their passengers.

I want SAS to stay alive, but the staff has to realize they are overpaid. Ironically, they have dug their own grave. Had they not been so unreasonably expensive, they might not have gotten the stiff competition that is now killing them.

I am glad I burned my 400’++ pts with EB last year as I think the Danish pilot union is happy to lose their jobs and see the company go bankrupt. Them, of all will even have most to lose if SAS goes down.

Granted, Norwegian will probably take some of the freed capacity, but not enough to compensate it all.

[Bucksnet]

Some links as no one else has posted any: –

http://translate.google.com/translate?sl=no&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fwww.nrk.no%2Fokonomi%2Fdansk-tv_-sas-sier-opp-1000-ansatte-1.8392386

http://translate.google.com/translate?hl=en&sl=no&tl=en&u=http%3A%2F%2Fe24.no%2Fboers-og-finans%2Fsas-ekspert-sas-har-truet-fagforeningen-med-konkurs%2F20298282

http://translate.google.com/translate?hl=en&sl=no&tl=en&u=http%3A%2F%2Fwww.aftenposten.no%2Fokonomi%2FDansk-TV-SAS-sier-opp-1000-ansatte-7042479.html

[AMcWhirter]

The latest news is not looking good.

According to a report on Bloomberg, talks between SAS management and the unions have not made any progress.

As a result, according to SAS spokesmen Mikkel Thrane, “Airline management has ordered all aircraft outside Scandinavia to be refuelled and ready to return to home base immediately, and crews on all outbound flights to carry enough cash to meet expenses.”

http://www.bloomberg.com/news/2012-11-18/sas-group-management-rejects-offers-from-cabin-crew-pilots.html

[londonlad]

Looking very bad for SAS…

http://www.thelocal.se/44486/20121118/

[SimonRowberry]

I find this very sad indeed, but somewhat inevitable.

I have been a Gold SAS Eurobonus member for around 10 years. That said, I had not flown them for around 2 years (finding LX and LH more convenient and cheaper, especially from BHX).

A month or so ago, I paid around GBP 900 for a Business Class ticket on SK, from BHX to HEL via CPH. The SK-operated outward flight was fine (apart from a cold meal on a 2-hour flight).

However, the CPH-HEL-CPH legs were operated by Blue1 (KF). Having paid a full Business fare, I discovered that KF only have a “Premium” cabin, where the only tangible benefit over economy seemed to be that I got a “free” sandwich and cuppa from the (otherwise) onboard pay trolley. They were even ambiguous, when asked, about whether the middle seat was kept free (it wasn’t on either of the two flights).

SK used to operate some flights from HEL, with others operated by KF; now, it is KF only.

Returning on the CPH-BHX leg, the aircraft was a Canadair Regional Jet, with 2-2 seating. Unlike LH, both seats each side were sold in Business and the result was a full and extremely uncomfortable flight.

All in all, I felt vindicated in not having used them for so long. The ticket was expensive, with little benefit or comfort in terms of service. I used to fly SK around 100 sectors a year between 2002 and 2007, and I cannot believe how they have gone downhill.

Having said this, I will miss them of they go. I have flown them since the late 1970s and remember when they were an innovative airline with superb service. The problem is that they seem not to have moved on with the times and have tried to position themselves somewhere between a LCC (if you are in Y) and a full-service legacy carrier (if you are in Y-Extra or J). It hasn’t worked at all.

It should also be remembered that if they go to the wall, so will Blue1 and Wideroe, both of which perform important social and economic functions linking remote communities in Norway and Finland. Also, I guess the future of Estonian Air is also an issue….

I keep my fingers crossed, but it is very hard to be hopeful.

Guess that’ll also be my Gold Star Alliance status down the pan too…

Cheers, Simon

[SimonRowberry]

You can follow the drama live here if you can read Norwegian.

http://www.aftenposten.no/nyheter/Her-kan-du-folge-SAS-dramaet-direkte-7048434.html

The first flight tomorrow morning from OSL is scheduled to depart as usual, apparently. And there is still hope. Comments are made about the deadline being too tight and the need for a few days more to broker a deal.

On another site, a Swedish union leader says that if SAS get their way it will scupper many other collective agreements and that “sometimes it’s better to pull down the shutters” on a company…..

Simon

[Author]

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