Le billet of Monocle

SAS enters turbulence

05 July 2022

This week we talk about SAS Airlines, the Scandinavian airline.  Action… SAS proposed a restructuring plan last February, following the effects of the covid. The objective: to discuss with the creditors and find an agreement to save the group's skin.After a month of negotiations, the pilots were not convinced and yesterday launched a strike that could affect 50% of the flights of the summer season....ReactionSAS announced this morning that it is filing for bankruptcy protection in the US.In the US, bankruptcy law is defined in 2 "chapters":- Chapter 7, which governs the bankruptcy and liquidation of the company (cessation of activity and sale of assets),- and Chapter 11, which allows companies to reorganise and put in place a restructuring plan (maintenance of the activity under the control of the court, renegotiation of debts, etc.)SAS opted for Chapter 11. Objective: to restructure the group while keeping the planes flying. The aim is to increase the company's capital by almost SEK 10 billion (Swedish krona, the local currency). If you want to attract investors, you have to clean up your act a bit.Our position- Two states in the capital (Sweden and Denmark, which hold 44% of the company) and soon three (Norway has agreed to have its debt converted into shares). Probability that the Scandinavian flagship will end up in liquidation: very low.- A gradual but solid recovery in air traffic (1.8 million passengers in May 2022, compared to barely 400,000 over the same period one year ago).- A proposed capital increase that would give the CFO a breath of fresh air- And an ambitious cost-cutting programme (this argument appeals a little less to the pilots...)ConclusionSAS has 120 days to propose a restructuring plan with the agreement of its main creditors.In the meantime, the debt is valued at 34% of par. This means that for a loan of SEK 100 (with SEK 4 interest paid each year), investors think they can only get SEK 34 back.The market is therefore betting on a liquidation scenario. This is not the case for us.We have just increased our investment to 3% of the fund.Stay tuned.Have a great week,Pierre


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