SAS strikes survival deal with unions

COPENHAGEN/STOCKHOLM Mon Nov 19, 2012 11:51pm IST

A ground staffer carries warning cones between two SAS Boeing 737 aircrafts parked at Arlanda airport's Terminal Five, north of Stockholm November 13, 2012. REUTERS/Johan Nilsson/Scanpix

A ground staffer carries warning cones between two SAS Boeing 737 aircrafts parked at Arlanda airport's Terminal Five, north of Stockholm November 13, 2012.

Credit: Reuters/Johan Nilsson/Scanpix

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COPENHAGEN/STOCKHOLM (Reuters) - SAS (SAS.ST) has won union backing for big cost cuts, in a deal intended to secure new financing and the Scandinavian airline's long-term survival as it fights low-cost competitors.

SAS, half owned by the governments of Denmark, Norway and Sweden, said on Monday eight unions had agreed wage cuts and changes to working schedules and pensions.

Its shares closed up 23 percent at 6.90 Swedish crowns.

Talk that SAS faced bankruptcy if the talks failed hit its stock last week after it said it wanted to cut overall staffing about 40 percent to 9,000 by shedding assets, reduce the workforce by a further 800 with job losses and trim salaries up to 17 percent to get financing.

Fears of a possible bankruptcy were heightened on Sunday when SAS told crews to ensure airplanes were fully fuelled so as to be able to return home if needed. The airline also gave cash to flying staff to make sure they could get hotel rooms.

"We now have a plan for long-term profitability. We have built a strong base," chief executive Rickard Gustafson said on Monday. "These were very big sacrifices ... from the unions."

While unions have agreed the cuts, analysts questioned whether SAS can survive on its own in the long term against stiff competition from regional rival Norwegian Air Shuttle (NWC.OL) and Ryanair (RYA.I), both of which have lower costs.

"Although they are lowering their costs by 3 billion crowns, they will still be a high-cost company," Arctic Securities analyst Kenneth Sivertsen 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)."

Board member Jacob Wallenberg told a news conference SAS would now be able to stay in business long term, whether on a stand-alone basis or in another shape. "Today we have created conditions to make it on our own. There may be a number of other strategic alternatives going forward."

Chairman Fritz Schur said a merger would be good for SAS.

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. An SAS spokeswoman said it viewed that vote as a technicality which would not prevent the deal going ahead.


SAS needed to get agreement from all eight unions as a condition of a 3.5 billion Swedish crown ($515 million) 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 Swedish Wallenberg business family, a core SAS shareholder.

Parliamentary approval will be required for the governments to make the loan, said SAS whose stock has lost 69 percent of its value since 2011 to be worth less than 2 billion crowns.

Espen Pettersen, deputy leader of the main Norwegian cabin union, said: "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".

SAS aims to cut annual costs by about 3 billion crowns. 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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