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SAS Says Cost-Reduction Program Won’t Disrupt Flights

November 11, 2012

SAS Says Spending-Reduction Program Won’t Disrupt Flights

SAS, which is struggling with high fuel costs and competition from carriers including Norwegian Air Shuttle ASA, has dropped 19 percent this year, valuing the company at 2.12 billion kronor. Source: SAS Group AB via Bloomberg

SAS Group (SAS), the Nordic region’s biggest airline, said passengers won’t be affected by the company’s soon-to-be-announced cost-reduction program.

“We can safely say that the cost plan that will be introduced tomorrow won’t disrupt flight plans,” Trine Kromann- Mikkelsen, a Copenhagen-based SAS spokeswoman, said. “There won’t be changes to the traffic program before the plan is introduced nor after.”

SAS will shed several hundred jobs and will lower salaries by eliminating some managers and creating new management positions at lower wages, a person with knowledge of the situation said. The program includes more than 1,000 job cuts and wage reductions of about 15 percent, Danish broadcaster TV2 reported today, without saying how it obtained the information.

SAS, which hasn’t posted an annual profit since 2007, said Oct. 30 it was finalizing a plan to sell 3 billion kronor ($450 million) in assets and cut the same amount from costs. The Stockholm-based airline is deepening a savings program that already aims to shave 5 percent from costs and boost earnings by 5 billion kronor in 2012 and 2013. SAS has cut 300 administrative jobs this year.

“SAS’s wages have always been too high and the company has been too inflexible to adjust,” Jacob Pedersen, an analyst with Sydbank A/S (SYDB) in Aabenraa, Denmark, said in a phone interview. “SAS has been facing these cost problems for a very long time.”

Asset Sales

The carrier seeks to sell its ground service, which includes baggage handling and check-in, as well as properties it owns, said the person, who asked not to be identified discussing plans that have not yet been announced. Final deals on the sales have yet to be reached, the person said.

Swedish newspaper Expressen today reported, without citing anyone, that SAS passengers may become stuck worldwide if the company fails to come up with a solution before tomorrow.

Rival European carriers are also scaling back. International Consolidated Airlines Group SA said Nov. 9 it will eliminate 4,500 jobs at its Spanish unit Iberia, or more than one-fifth of the total.

Air France-KLM Group, Europe’s biggest airline, said on Oct. 31 it intends to scrap 1,300 positions at its Dutch unit in addition to 5,000 already being eliminated within the larger French business. Deutsche Lufthansa AG is cutting 3,500 administrative posts and as many as 1,000 catering positions. Lufthansa’s Swiss Air unit will cut as many as 100 jobs, SonntagsZeitung reported today, citing Susanne Muehlemann, a spokeswoman.

Credit Lines

SAS, part-owned by the Swedish, Norwegian and Danish governments, said last month it’s in talks with banks to extend 4.7 billion kronor of credit lines expiring in June and that the new savings plan “is an essential part of the negotiations.” While the dialogue has been constructive, lenders are concerned about the history of losses, a person familiar with the situation said at the time.

SAS, which is struggling with high fuel costs and competition from carriers including Norwegian Air Shuttle (NAS) ASA, has dropped 19 percent this year, valuing the company at 2.12 billion kronor.

Employees at SAS’s Norwegian airline Wideroe have proposed to buy the unit from the parent company. The proposal envisioned local Norwegian investors taking a two-thirds stake in the enterprise, pilot Ola Giaever, who’s leading the effort, said Oct. 31.

To contact the reporters on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net; Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editors responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net


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