SAS annouces additional cost savings initiatives of EUR198 million, announces rights issue

SAS plans (09-Feb-2010) to implement additional cost savings initiatives of EUR198 million (SEK2.0 billion) and measures to strengthen the balance sheet, including debt maturity extensions and a proposed rights issue of approximately EUR495.6 million (SEK5 billion), due to a greater than expected deterioration in the macroeconomic environment and higher than expected restructuring costs in 2009. The implementation of the new measures has been initiated with earnings impact expected during 2010 through 2012, with the majority of the effects expected in 2010. Details include:

• Core SAS (cost cutting) strategy: implementation of the strategy proceeded according to plan in 2009, with approximately 66% of the EUR524 (SEK5.3 billion) in annual cost savings implemented with a significant cost reduction effect of SEK 2.2 billion achieved already in 2009. The new cost saving initiatives will bring the Core SAS cost savings program to a total of EUR723.6 million (SEK7.3 billion). Cuts will be made through further centralisation and efficiency enhancement leading to personnel reductions in administration, permanent personnel reductions in production; additional procurement related savings; efficiency improvements in process and planning; structural changes such as maintenance program and set-up of line stations, and additional FTE reduction; Blue1/Widerøe/Cargo initiatives and efficiency measures dependent on changes in certain collective agreements. In addition, SAS signed a letter of intent with flight deck and cabin unions, with the clear commitment of saving an additional EUR50 million (SEK0.5 billion);
• Balance Sheet Strengthening: agreement has been reached to improve terms with lending banks in particular to secure an extension of four revolving credit facilities by one year to 2013 (total of approximately EUR495.6 million) and adjust the covenant profile to provide additional flexibility. A process has also been initiated with the plan to secure refinancing or extension of maturities of majority of 2010 bond maturities in the public and private debt markets in the coming months;
• Rights issue: will have preferential rights for SAS shareholders. It is supported by SAS' largest shareholders and a consortium of underwriting banks, subject to, amongst other things, the refinancing of the bonds and final agreement with flight deck and cabin unions. Terms of the rights issue, including subscription price, are expected to be announced on 06-Apr-2010. The rights issue is subject to approval by an Extraordinary General Meeting planned for 07-Apr-2010. The subscription period is expected to run from 15-Apr-2010 to 29-Apr-2010. Swedish, Danish and Norwegian governments have separately expressed to the Board of Directors their support for this process. [more]
• Norwegian Air Shuttle criticised Swedish and Norwegian government support, stating it is "distorting competition", and that "thanks to tax payers support", SAS was responsible for "aggressive price dumping" over the past year.

SAS: "We are confident that Core SAS is the right strategy. The unprecedented severity of the market downturn has been far worse than anticipated in the original Core SAS plan and has had an adverse impact on business travel, affecting yields and thus our revenues and liquidity position. In response to this, we are now enhancing the Core SAS strategy with an additional SEK2.0 billion of cost savings initiatives, bringing the total cost savings program to SEK 7.3 billion. In addition, we have signed a letter of intent with the unions with a clear commitment to provide another SEK0.5 billion in cost reductions. We are confident that these significant cost reductions, coupled with the refinancing and the proposed rights issue, will give SAS the strength and flexibility it needs to compete effectively and be well positioned for the market recovery," Mats Jansson, President and CEO. Source: SAS, 09-Feb-2010.