Airline SAS strikes survival deal with unions

COPENHAGEN/STOCKHOLM Mon Nov 19, 2012 12:27pm EST

An aircraft operated by Scandinavian airline SAS is brought into position at the Berlin Tegel airport November 12, 2012. REUTERS/Tobias Schwarz

An aircraft operated by Scandinavian airline SAS is brought into position at the Berlin Tegel airport November 12, 2012.

Credit: Reuters/Tobias Schwarz

COPENHAGEN/STOCKHOLM (Reuters) - Scandinavian airline SAS agreed severe cost cuts with unions on Monday in a deal intended to secure new financing and the airline's long-term survival.

SAS, half owned by the governments of Sweden, Denmark and Norway, said eight unions had backed wage cuts and changes to working schedules and pensions, after talks missed a Sunday deadline and continued through the night.

The company's shares soared on the deal after media speculation that the airline could have faced bankruptcy if the talks had failed.

Hit by competition from lower-price rivals, SAS last week said it would reduce overall staffing by about 40 percent to 9,000 by shedding assets, reduce the workforce by a further 800 with job cuts and decrease some salaries by up to 17 percent to get new financing from banks and its main owners.

Even though unions have agreed to the cuts, analysts have questioned whether the airline can survive on its own in the long term as it faces stiff competition from Ryanair (RYA.I) and regional rival Norwegian Air Shuttle (NWC.OL), both of which have lower operating costs.

SAS chief executive Rickard Gustafson acknowledged the concessions unions had made.

"These were very big sacrifices and a great amount of responsibility from the unions," he said on Monday, speaking at the company's headquarters at the main airport in Danish capital Copenhagen, where the talks were held.

"We now have a plan for long-term profitability. We have built a strong base," he added.

Kenneth Sivertsen, an analyst at Arctic Securities, questioned whether SAS would continue as an independent carrier.

"Although they are lowering their costs by 3 billion crowns, they will still be a high-cost company," he said.

"I think they will be taken over. As a stand-alone company they will be squeezed between low-cost airlines and the huge flight carriers, such as Lufthansa (LHAG.DE) and Air France (AIRF.PA)."

One union, the Danish Pilots Union, still has to hold a ballot of members in which one third have to agree to the cost-cutting deal.

A SAS spokeswoman said the airline viewed the vote as a technicality which would not prevent the deal going ahead. SAS expects a result in the next few days.

GRUELLING PROCESS

SAS needed to get agreement from all eight unions as a condition of a 3.5 billion Swedish crown loan from its shareholder governments and seven banks.

Sweden's finance ministry said on Monday the governments would take part in the credit facility, which is also backed by a foundation run by the wealthy Swedish Wallenberg business family, a core SAS shareholder.

Parliamentary approval will be required for the governments to make the loan, SAS said.

By 1610 GMT, its shares were up 22 percent at 6.85 Swedish crowns. Since 2011, the stock has lost 69 percent of its value to be worth less than 2 billion Swedish crowns.

"It has been a very gruelling process," said Espen Pettersen, deputy leader of the main Norwegian cabin union after his group agreed a deal earlier on Monday.

"We have made big concessions in this agreement. We are not very happy, but we felt we had no other choice but to sign to secure the jobs and the company," he added.

Raising fears of a possible bankruptcy, SAS told crews on Sunday to ensure airplanes were fully fuelled to be able to return home if needed. The airline was also giving cash to flying staff to ensure they could get access to hotels.

SAS has declined to say how long its cash would last if it failed to secure a loan.

The airline aims to reduce costs by about 3 billion Swedish crowns a year. In January-September it had combined payroll and other operating costs of about 30 billion crowns. Asset sales would strengthen the balance sheet by another by 3 billion crowns.

(Reporting by Johan Ahlander, Anna Ringstrom; additional reporting by Niklas Pollard and Veronica Ek in Stockholm, Victoria Klesty in Oslo and Mette Fraende in Copenhagen; writing by Patrick Lannin and Niklas Pollard; Editing by Erica Billingham)

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