SAS to shed 6,000 staff in 'final call' to keep flying

STOCKHOLM Mon Nov 12, 2012 9:11am EST

A baggage belt truck passes behind the tail of a Scandinavian airline SAS Boeing 737 aircraft at the Stockholm-Arlanda airport in Sweden May 3, 2012. SREUTERS/Johan Nilsson/Scanpix

A baggage belt truck passes behind the tail of a Scandinavian airline SAS Boeing 737 aircraft at the Stockholm-Arlanda airport in Sweden May 3, 2012. S

Credit: Reuters/Johan Nilsson/Scanpix

STOCKHOLM (Reuters) - Loss-making Scandinavian airline SAS will sell some of its assets and shed 6,000 staff to secure government-backed loans and stay in business after years of struggling with high costs.

Analysts doubted the measures would be enough to keep the airline independent, as its structure, designed more to secure jobs and Nordic solidarity than generate profit, has hamstrung its ability to cope with soaring jet fuel costs and compete with discount carriers such as Ryanair (RYA.I) and trimmer regional rival Norwegian Air Shuttle (NWC.OL).

"This truly is our 'final call' if there is to be a SAS in the future," said Chief Executive Rickard Gustafson after launching a new rescue plan for the airline, founded in 1951, which has not made a full-year profit since 2007.

The latest plan aims to buy SAS two years' breathing space, after which banks and its major shareholders - the governments of Sweden, Norway and Denmark - will pull the plug. Sweden said the governments had tried but failed to sell SAS.

SAS said unions had until Sunday to agree to wage cuts, which will be up to 17 percent for some staff.

A key problem for the company has long been its structurally high costs. While Norwegian Air Shuttle has hired employees from outside the Nordic region for less, SAS planes had to be staffed according to the proportion of its state ownership.

"If you were going to build an airline tomorrow, you would not do it like this," said Ole Kirchert Christensen, Danish airline industry consultant at TravelBroker consultancy.

"They are trying to tear down what they have built up and start again," he said.

SAS said the new package would improve earnings by 3 billion crowns by cutting costs, while asset sales would strengthen the company's balance sheet by 3 billion crowns.

The new credit facility is worth around 3.5 billion crowns. It is being provided by seven banks and the governments of Denmark, Sweden and Norway, but is conditional on unions agreeing to the wage cuts.

SAS's 2011 annual report showed unit costs on average of 0.86 Swedish crowns per available seat flown over the year, whereas Norwegian's was 0.45 Norwegian crowns.

Norwegian, with just 2,555 staff against SAS's 15,000, made a pretax profit of 166.5 million Norwegian crowns in 2011, while SAS made a loss of 1.6 billion Swedish crowns.

SAS, which has lost 12.4 billion Swedish crowns since the start of 2002 and already sold off assets worth 80 billion crowns over 12 years, expects a small loss this year.

"We are in a market where competition is razor sharp," said Gustafson, whose 10 million crown salary will be cut by 20 percent as part of the new savings package.

The airline's survival plan will cut 800 jobs and shed another 5,000 or so through asset sales, bringing staff numbers down to around 9,000. In addition, remaining workers face salary cuts and less generous pensions.

"When we fly between Stockholm and Oslo we are going to have the same costs as Norwegian," Gustafson said.

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FOR SALE

Even with the new survival plan, few expect the airline to survive as an independent in the long term. "I think, eventually, they will be taken over by someone bigger," said Swedbank First Securities analyst Hans Erik Jacobsen.

"To be a relatively small network carrier is quite costly, and SAS would benefit from economies of scale from being acquired by a bigger company."

SAS is not the only airline taking an axe to costs; Spanish airline Iberia last week said it would shed almost a quarter of its workforce.

Sweden's government said it had held talks with buyers, but failed to find a bidder in the last 1-1/2 years. It did not name any of the counterparts. Lufthansa has long been seen as a possible buyer, but is now engaged in its own cost-cutting drive.

The assets SAS aims to sell are its profit-making Norwegian unit Wideroe, aircraft engines, some real estate and the group's ground handling unit.

It said it would take measures to cut a deficit in the company pension plan to 7.6 billion crowns from 12 billion crowns.

"We are not exactly toasting in champagne today," said Jan Levi Skogvang, leader of Norwegian union Parat.

"However, I think that we are determined to contribute to solve the situation ... We will now look carefully at the savings plan and go from there," he said.

Other unions were less conciliatory.

"I am very critical about the way they are dealing with this question. This is something that has been in preparation for a while, and they are choosing to push it through in seven days," said Cecilia Fahlberg, chairman of Swedish union Unionen. (Reporting by Simon Johnson, Mia Shanley and Veronica Ek; Writing by Patrick Lannin, Editing by Anna Willard and Will Waterman)

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