Airline SAS to slash costs to secure future

STOCKHOLM Tue Oct 30, 2012 7:42am EDT

A car stops to let a Scandinavian airline SAS Airbus 330-300 aircraft pass on its way to the runway for a flight to the U.S. at the Stockholm-Arlanda Airport in Sweden May 3, 2012. REUTERS/Johan Nilsson/Scanpix

A car stops to let a Scandinavian airline SAS Airbus 330-300 aircraft pass on its way to the runway for a flight to the U.S. at the Stockholm-Arlanda Airport in Sweden May 3, 2012.

Credit: Reuters/Johan Nilsson/Scanpix

STOCKHOLM (Reuters) - Loss-making Scandinavian airline SAS said it will slash costs and sell assets to secure its future following media reports it was in financial difficulties.

SAS, which made a 1.6 billion crown pretax loss in 2011, has been struggling for years against cut-price rivals such as Ryanair, industry overcapacity and more recently soaring jet fuel costs and an economic slowdown.

SAS, part-owned by Norway, Sweden and Denmark, said it was working on a plan that would cut costs, reduce complexity and ease the effect of a possible equity writedown due to pension accounting changes.

The move comes as rivals, such as Deutsche Lufthansa and Air France-KLM, have also embarked on cost cutting programmes, trimmed profit forecasts and slashed plans to expand capacity and fleets.

SAS's latest plan will keep it flying for a while, but analysts believe the airline only has a long-term future as part of a bigger alliance.

"The problem for now is that there isn't anyone willing to acquire it," said Jacob Pedersen, analyst at Sydbank. "I expect SAS to survive as a company, but it will be a bumpy road."

The airline said it made a third-quarter pretax profit of 568 million crowns, bringing forward its results after reports it was in financial trouble led to a suspension of share trading.

Shares in SAS, which has not made a full-year profit since 2007, rose 18 percent to 6.90 crowns after trading resumed.

SLIM DOWN

SAS said the plan is expected yield approximately 3 billion crowns in earnings before tax, adding it will also sell assets totalling around 3 billion crowns, but provided no further details.

The airline said it was currently in negotiations regarding the extension and amount of its revolving credit facility.

SAS said it had liquid funds of 2.4 billion crowns and available credit facilities of 4.7 billion crowns, which will expire in June 2013.

SAS, which faces a hit to shareholder equity of up to 10.7 billion crowns when new pension accounting rules are introduced in November 2013, is not the only airline to be suffering.

In August Cathay Pacific Airways posted its worst first-half loss since 2003, and International Airlines Group, the owner of British Airways and Iberia, reported a group operating loss of 253 million euros in the six months to the end of June.

The International Air Transport Association (IATA), which represents about 80 percent of global carriers, expects the $630 billion airline industry to make a net profit of $4.1 billion this year, up from an earlier forecast of $3 billion but still less than half the $8.4 billion achieved in 2011.

IATA said industry profits would rise next year to $7.5 billion, helped by passenger traffic expansion of 4.5 percent. (Additional reporting by Veronica Ek, Niklas Pollard; Editing by Alistair Scrutton and Louise Heavens)