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SAS Q4 2023: Secure Financing for The Future

Q4 2023: SAS Secures Financing For The Future – Key Milestone In SAS’ Chapter 11 Process

SAS has presented its Q4 2023 year-end report. The airline offered updates on its performance, the Chapter 11 process in the U.S., and financing for the future. Additionally, the European Commission re-approved the participation of the Kingdoms of Denmark and Sweden in SAS’ recapitalization. This is subject to a “step-up mechanism.”

Q4 2023: SAS Secures Financing For The Future – Key Milestone In SAS’ Chapter 11 Process

Statement from Anko van der Werff, SAS President & CEO

“I am pleased to conclude a busy year for SAS. Some 6.8 million passengers traveled with SAS in the fourth quarter, which means that, in total, some 23.7 million passengers traveled with SAS during the full fiscal year 2022/2023. This represents a passenger volume increase of 18 percent for the fourth quarter, and a 33 percent year-on-year increase for the full fiscal year. This is a clear confirmation of passengers continuing to return to SAS, and that our ramp-up efforts throughout the year have been successful. We are also proud to have achieved a five-star rating from our customers in the 2023 APEX Awards.

“We are making steady progress in our Chapter 11 process in the US and in reaching our overall targets in the SAS FORWARD plan with one major milestone reached during the quarter. On October 3, SAS announced that Castlelake, Air France-KLM and Lind Invest, together with the Danish state, had been selected as the winning bidder consortium in SAS’ exit financing solicitation process. We entered an investment agreement with the bidding consortium shortly after the end of the quarter. The agreement includes a total investment in the reorganized SAS corresponding to approximately SEK 13.2 billion, including approximately SEK 5.2 billion in new unlisted equity and approximately SEK 8 billion in secured convertible debt. The investment comprises a key step in our SAS FORWARD plan, and confirms that our new investors believe in SAS and our potential to remain at the forefront of the airline industry for years to come.

“We currently target receiving approval of the Chapter 11 plan from the US court in early 2024, to be followed by obtaining regulatory approvals and the implementation of a Swedish company reorganization at the SAS AB level (likely to be filed by SAS AB in 2024). As a result of that process, all of SAS AB’s common shares and listed commercial hybrid bonds are expected to be cancelled, redeemed and delisted (currently expected to take place during the second quarter of 2024). Consequently, there is no expected value for existing shareholders in SAS AB and only a modest recovery is expected for the holders of commercial hybrid bonds. SAS expects that its operations will be unaffected by such legal proceedings and that it will continue to serve its customers as normal.”

Anko van der Werff, SAS President & CEO.

SAS Performance August 2023–October 2023

  • Revenue: MSEK 12,019 (10,651)
  • Income before tax (EBT): MSEK -2,110 (-1,701)
  • Income before tax and items affecting comparability: MSEK -2,113 (-1,626)
  • Net income for the period: MSEK -1,928 (-1,238)
  • Earnings per common share: SEK -0.27 (-0.17)

SAS Performance November 2022–October 2023

  • Revenue: MSEK 42,043 (31,824)
  • Income before tax (EBT): MSEK -5,516 (-7,846)
  • Income before tax and items affecting comparability: MSEK -5,661 (-7,941)
  • Net income for the period: MSEK -5,701 (-7,048)
  • Earnings per common share: SEK -0.78 (-0.97)

Significant Events During The Quarter

  • Higher costs from adverse currency trends and fuel prices masked improved operational and commercial performance.
  • The loan guarantees granted by Sweden and Denmark in 2020 were deemed compatible with the applicable EU rules by the CJEU.
  • Castlelake, Air France-KLM, Lind Invest, and the Danish state formed the winning bidder consortium in SAS’ equity solicitation process.
  • An agreement was reached with Castlelake to refinance SAS’ original DIP loan with a new DIP loan.
  • SAS aims to obtain approval from the US Court for the Chapter 11 plan in early 2024.
  • Regulatory approvals and a likely Swedish company reorganization are expected to follow.
  • Only modest recovery is anticipated for general unsecured creditors.
  • Subordinated unsecured creditors are not expected to receive any recovery.
  • There will be no value for existing shareholders in SAS AB after the restructuring proceedings are completed.
  • SAS AB’s common shares and listed commercial hybrid bonds will be canceled, redeemed, and delisted.

SAS Significant Events After The Quarter

  • SAS entered into an investment agreement with the winning bidder consortium and a DIP term loan agreement with Castlelake. The US court has approved the agreements.
  • On Nov 15, SAS repaid the original DIP term loan that Apollo Global Management provided.
  • On Nov 29, the EU Commission re-approved the recapitalization of SAS in 2020 as compliant with state aid rules.

Outlook

  • The year-end report includes a financial outlook on page 10. (See report below).

SAS Year-End Report

SAS Quarterly Results

“We noted continued healthy passenger demand through the fourth quarter, with the total number of passengers up 17.9 percent compared with the same period last year. Year-on-year, our RPK increased 17.2 percent, while capacity increased 16.2 percent. Our flown load factor for the quarter was 77.8 percent, up 0.7 percentage points compared with the same period last year,” said Anko van der Werff, SAS President & CEO.

  • Passenger demand and production contributed to a 13% year-on-year increase in total operating revenue. Revenue reached SEK 12,019 million for the quarter.
  • Depreciation of the Swedish Krona and higher jet fuel prices resulted in negative SEK 2,110 million in earnings before tax for the quarter. The airline reported a year-on-year decrease of SEK 409 million.
  • For the full year, earnings before tax improved by SEK 2,330 million but remained negative at SEK 5,516 million.
  • Higher costs from adverse currency trends and fuel prices overshadow the positive impact of more robust operational and commercial performance.

“Cost reductions across the business remain in focus to secure our cost competitiveness, and total operating expenses for the quarter ended at SEK 12,681 million. Many of the cost efficiencies of the SAS FORWARD plan are ramping up over time, and some have been implemented but cannot be recognized in our financial results until after emergence from Chapter 11, including cost savings from the fleet restructuring,” said Anko van der Werff, SAS President & CEO.

  • The cash balance at the end of the quarter was SEK 6,160 million.
  • Cash flow from operating activities during the quarter amounted to an inflow of SEK 81 million.

Update On SAS’ Transformation Plan

“We launched our comprehensive business transformation plan SAS FORWARD in conjunction with the publication of the first quarter report for FY2022, in the end of February 2022. The aim of the plan is to secure long-term competitiveness for SAS in the global aviation industry. On July 5, 2022, to accelerate the implementation of SAS FORWARD, we announced that we had voluntarily filed in the US for Chapter 11, a well-established and flexible legal framework for restructuring businesses with operations in multiple jurisdictions. Through this process, we aim to reach agreements with key stakeholders, restructure the company’s debt obligations, reconfigure our aircraft fleet and emerge with a significant capital injection,” said Anko van der Werff, SAS President & CEO.

On October 3, SAS announced it had selected Castlelake, Air France-KLM, and Lind Invest, together with the Danish state, as the winning bidder consortium in the exit financing solicitation process.

“We entered into an investment agreement with the bidding consortium shortly after the quarter ended. The agreement entails a total investment in the reorganized SAS corresponding to approximately SEK 13.2 billion, including approximately SEK 5.2 billion in new unlisted equity and approximately SEK 8 billion in secured convertible debt. As part of the transaction, we have also secured new Debtor-in-Possession (“DIP”) financing of SEK 5.5 billion from Castlelake. The funds from the new DIP financing agreement are being used for, inter alia, refinancing SAS’ original DIP term loan, increasing liquidity, and supporting SAS’ path to exit from its voluntary restructuring proceedings. The refinancing of SAS’ original term loan was completed in November 2023,” said Anko van der Werff, SAS President & CEO.

SAS Joining SkyTeam

As part of the transaction, SAS intends to eventually exit the Star Alliance and join the SkyTeam Alliance, of which Air France-KLM is a founding member. This move towards a partnership with SkyTeam determines a clear path forward for the company. Completing this process and the opportunities presented by being part of SkyTeam will enhance SAS’ offerings.

“This is a truly exciting step for SAS. However, it is important to note that nothing is changing immediately. SAS is still part of Star Alliance. EuroBonus members will continue to enjoy their usual benefits when flying on our partner airlines. Members can continue to accrue and redeem points – just like today, and their benefits when they fly with SAS will not be impacted,” said Anko van der Werff, SAS President & CEO.

Pending Approval of SAS Chapter 11 Reorganization Plan

The agreed exit transaction remains subject to approval with the confirmation of SAS’ Chapter 11 reorganization plan.

“We currently target to receive approval of the Chapter 11 plan from the US court in early 2024, to be followed by obtaining regulatory approvals and the implementation of a Swedish company reorganization at the SAS AB level (likely to be filed by SAS AB in 2024). As a result of that process, all of SAS AB’s common shares and listed commercial hybrid bonds are expected to be canceled, redeemed, and delisted (currently expected to occur during the second quarter of 2024). Consequently, there is no expected value for existing shareholders in SAS AB, and only a modest recovery is expected for the holders of commercial hybrid bonds. SAS expects that its operations will be unaffected by such legal proceedings and that it will continue to serve its customers as normal,” said Anko van der Werff, SAS President & CEO.

SAS Five-Star Rating In Global Customer Ranking

In September, SAS earned a five-star rating in the prestigious global APEX customer ranking at the 2023 APEX Awards. The ranking is based on neutral, third-party passenger feedback and insights from APEX’s partnership with the world’s highest-rated travel-organizing app.

“We are thrilled to achieve the highest rating from our customers, and this recognition is a testament to the tireless dedication of the SAS team in ensuring safe journeys, championing sustainability initiatives and offering the highest service standards,” said Anko van der Werff, SAS President & CEO.

Red Dot Award For The SAS App

In September, SAS also won a Red Dot Award for its redesigned mobile app. The Red Dot Award is one of the most prestigious and internationally recognized design competitions and celebrates outstanding achievements in design, creativity, and innovation. The SAS app earned the award in the Brands & Communication Design 2023 category.

“This achievement is a result of the hard work and dedication of our talented team, and all supporting teams, who continuously strive to create innovative solutions that deliver exceptional experiences for our customers,” said Anko van der Werff, SAS President & CEO.

Steps Towards Fossil-Free Aviation

SAS is decarbonizing aviation by collaborating with customers and increasing sustainable fuel production. The airline participated in a study at Copenhagen Airport, showing that bio-based aviation fuel reduces emissions and improves air quality. This project is a testament to the collective effort to find sustainable solutions for the industry.

SAS Plans The Coming Winter Season

“We have entered the winter season and we look forward to flying our passengers to their destinations. We have added several new routes and destinations for the winter season. In October, SAS inaugurated the new winter season route to Bangkok from Copenhagen. Thailand is a favorite destination among many passengers during the winter season and the Bangkok route will offer a perfect entry point for wider Thailand and Asia, and be a great option both for business and for leisure travelers. SAS operates the Bangkok route with Airbus A350 aircraft, which have much lower fuel consumption and up to 30 percent lower CO2 emissions than previous comparable aircraft.

“We continue our work towards completing our Chapter 11 process in the US, and towards reaching the objectives in the SAS FORWARD plan. The aim is currently to receive approval from the US court of the Chapter 11 plan in early 2024, to be followed by obtaining regulatory approvals and the implementation of a Swedish company reorganization at the SAS AB level. While work still remains, I am pleased to see the substantial progress we are making to becoming a competitive and financially strong company.

“I am grateful for the really hard work of my colleagues at SAS for the progress of SAS FORWARD to date and for everything they do to ensure that we take the best possible care of our customers on a daily basis. Thank you for all your efforts! As always, we look forward to welcoming our customers onboard our aircraft.”

Anko van der Werff, SAS President & CEO

European Commission re-approves Denmark’s and Sweden’s participation in the 2020 recapitalization of SAS

The European Commission has approved the participation of Denmark and Sweden in the 2020 recapitalization of SAS as compatible State aid. This is subject to a “step-up mechanism” for the States’ investments. This requirement will be discussed at the general meeting of shareholders in SAS AB.

In 2020, Denmark and Sweden invested approximately SEK 9.5 billion in SAS through hybrid notes and common shares. Initially, the Commission approved the investment as compatible State aid under the Temporary Framework for COVID-19 economic support. However, in May 2023, the EU General Court ruled that a “step-up mechanism” should have been included in the States’ investment based on the requirements of the Temporary Framework. This decision annulled the European Commission’s initial approval.

Now, the European Commission has re-approved the 2020 State Investments as compatible State aid. However, the Commission added a condition that they introduce a step-up mechanism. This mechanism involves SAS issuing new hybrid notes to the States without consideration under certain conditions related to the 2020 share investments. The general shareholders meeting must approve this mechanism due to its classification as a related-party transaction under the Swedish Companies Act.

Importantly, this step-up mechanism does not affect the investment agreement made during SAS’ Chapter 11 process in the US. This agreement includes equity investments in the reorganized SAS.

SAS plans to convene an extraordinary general meeting of shareholders in January 2024 to approve the step-up mechanism.

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