Bloomberg News

SAS to Pare Payroll by 7,000 With Job Cuts, Handling Exit

November 12, 2012

SAS Braces for Possible Shutdown of Airline as Labor Talks Drag

SAS Group prepared for a possible shutdown of the Nordic region’s biggest carrier as talks with labor unions needed to secure financing dragged on. Photographer: Erik Abel/Bloomberg

SAS Group (SAS), the biggest Nordic airline, plans to cut office jobs and sell assets including a ground-handling unit and Norwegian offshoot Wideroe as it seeks to reduce the payroll by more than 7,000 to stave off collapse.

SAS will also dispose of airport real estate and unused aircraft engines to raise a total of 3 billion kronor ($444 million), it said today. Some 800 administrative posts will be eliminated by focusing work at the company’s Stockholm base.

“We can’t continue to operate if we don’t demonstrate that we can make a profit,” Chief Executive Officer Rickard Gustafson told reporters. “Credit providers have told us, ‘we give you this chance to turn the company around, and if you don’t demonstrate quickly you can do this we won’t support you.’”

SAS, unprofitable on an annual basis since 2007, has already scrapped 300 office jobs this year as part of an earlier plan to shave 5 percent from spending and lift earnings by 5 billion kronor through 2013. Talks are under way with potential buyers for the handling business, which employs 5,000 people, and “all options” are being considered for Wideroe, based in Bodoe in northern Norway, where the workforce totals 1,400.

“If this goes through they’ve bought themselves time to get in better shape,” said Louis Landeman, a senior credit analyst at Danske Bank Markets in Stockholm. “But a number of challenges remain, mainly reaching agreements with the unions.”

Shares Gain

SAS rose as much as 8.5 percent and was trading 3.9 percent higher at 6.70 kronor as of 10:31 a.m. in Stockholm. The stock has dropped 14 percent this year as the company struggles with fuel costs and competition from carriers including Norwegian Air Shuttle (NAS) ASA, giving a market value of 2.2 billion kronor.

SAS, part-owned by the governments of Sweden, Norway and Denmark, said it reached an accord with banks to increase credit lines to 3.5 billion kronor from 3.1 billion kronor and extend them through March 2015. The agreement is contingent on unions approving the latest cost reduction, totaling 3 billion kronor.

The company is seeking a 12 percent salary cut for flying personnel, according to Gustafson, whose own pay will be reduced by 20 percent. There is a “good climate” with unions, and the aim is to reach a deal by Nov. 17, the CEO said, adding that SAS faces “a very serious situation” if agreement isn’t reached.

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

Shrinking Payroll

Measures announced today will shrink SAS’s workforce from 15,000 people to about 9,000, Gustafson said, a 40 percent cut. Neither figure includes Wideroe. Of the office jobs being cut, 200 to 300 will go at the main Norwegian unit, according to SAS, which said Oct. 30 it was working on asset sales and cut costs.

At Wideroe, which has been owned by SAS since 2002, workers may make their own buyout bid as part of a plan that could see local Norwegian investors take a two-thirds stake, pilot Ola Giaever -- who is leading the effort -- said Oct. 31.

Wideroe, Scandinavia’s No. 1 regional airline, more than doubled pretax profit to 430 million kronor last year, excluding one-time items. It carries 2 million people annually to 40-plus Norwegian and six international destinations using a fleet of 39 Bombardier Inc. Dash 8 turboprops, according to its website.

Cash Concern

“Wideroe is well run and profitable and everything being equal I probably wouldn’t sell it,” Gustafson said in a phone interview. “But I can’t continue having a situation where we’re extremely dependent on external financing for our financial preparedness. We must improve our cash situation. We’re doing this to create more freedom for us in the future.”

SAS’s rivals are also cutting jobs and reorganizing their operations. International Consolidated Airlines Group SA (IAG), parent of British Airways, said Nov. 9 it will eliminate 4,500 posts at Spanish unit Iberia, or more than one-fifth of the total.

Air France-KLM (AF) Group, Europe’s biggest airline, said Oct. 31 it intends to scrap 1,300 positions at the Dutch division in addition to 5,000 already being eliminated within the larger French business. Deutsche Lufthansa AG (LHA) is cutting 3,500 administrative jobs and as many as 1,000 catering positions.

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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