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SAS shares slumped by as much as 95% today after the airline announced a financial restructuring on Tuesday to prevent bankruptcy, bringing on board big new investors and wiping out the stakes of its more than 250,000 owners.
SAS said that US investment firm Castlelake and Air France-KLM would become new major shareholders in the airline alongside the Danish state following bankruptcy proceedings.
Castlelake will take a stake of about 32%, Air France-KLM’s will be around 20% and the Danish state will hold about 26%, SAS said.
Scandinavia’s biggest carrier filed for bankruptcy protection in the US in mid-2022 after years of struggling with high costs coupled with low customer demand brought on by the Covid pandemic.
The company said total investments in the reorganised SAS would amount to 12.9 billion Swedish crowns ($1.16 billion).
Air France-KLM said it would invest $144.5m, of which $109.5m would be invested in common shares and $35m would be secured convertible bonds.
Air France-KLM said its stake may be increased to grant it control after a minimum of two years, subject to regulatory conditions and financial performance.
“Air France has undergone an astonishing turnaround from the end of the pandemic to today. SAS needs similarly extensive restructuring,” Bernstein said in a note to clients.
Bernstein noted that SAS was still losing money and that it had two “sub-scale” hubs geographically close to each other, Stockholm and Copenhagen, and that one likely had to go, though that could prove politically difficult.
SAS, which has historically had a large number of retail shareholders, will be delisted from the Stockholm, Copenhagen and Oslo stock exchanges.
“Given that our creditors with higher priority will not be fully paid in this process, our current shareholders will, unfortunately, not be allowed to receive anything,” Dilling said.
At least two shareholders expressed their displeasure at the decision, though it is unclear whether they would pursue legal action.
“I put a big question mark if an American court can decide that the owners of a Swedish listed company must give away their shares without any compensation. For me it’s very hard to understand,” private Swedish investor Gerald Engstrom told Reuters.
Engstrom said he has lowered his stake in the company. According to LSEG data, he owns 0.8% of SAS shares. Engstrom said it was too early to say if he together with other retail shareholders should seek compensation.
The transaction needs approval from the US bankruptcy court for the Southern District of New York as well as certain creditors and various regulatory authorities, including from the European Union.
The details of the transaction between the proposed new stakeholders and SAS also remain to be finalised, the airline said.
Similarly Sweden’s Wallenberg Investments, which owns 3.4% of SAS according to LSEG data, said it noted that current shareholders “will not receive any compensation and will not remain as owners”.
“When there is a winning bid on the table, we are willing to engage in a dialogue about the future if there is interest from the consortium. Thus, there is no decision today about participation or not on our part; instead, we continue to follow the process,” Wallenberg said in a statement.
SAS said earlier it had hoped to raise 9.5 billion Swedish crowns in new equity and convert 20 billion crowns of debt into equity.
“By securing this capital, we are fulfilling one of the key pillars in our SAS (transformation) plan, which will provide the company with a strong financial foundation to help drive the airline forward,” SAS Chairman Carsten Dilling told a news conference.
SAS, which in its glory days in the 1980s was named the world’s best airline by an industry group, has for more than a decade struggled to compete with low-cost rivals in Europe’s fragmented aviation sector.
Sources had told Reuters that US private equity giant Apollo Global Management hoped to take a majority stake in the airline.
Dilling said the decision to bring on new shareholders was taken at a board meeting half an hour before it was announced.
Lind Invest, a Danish investment firm, will hold 8.6% of equity, SAS said.
US-based Castlelake manages approximately $22 billion of assets. It has $18 billion invested in aviation opportunities, according to its website.
In addition to the Chapter 11 process, SAS also launched a cost-cutting programme in early 2022, in a bid to try and become profitable.
The airline initiated the equity rise in February and the deadline to submit final bids was on September 25, after having being postponed twice, the last time due to one or more of the bidders requiring additional time.
Dilling said SAS expects to formally emerge from Chapter 11 proceedings during the second quarter of 2024.
SAS is to leave the Sky Alliance and join the Skyteam alliance which Air France-KLM is part of.
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