Air France-KLM Takes SAS Stake in $1.2 Billion Restructuring

(Bloomberg) — SAS AB chose Air France-KLM and private equity firm Castlelake LP to anchor a $1.18 billion investment in the bankrupt Scandinavian flag-carrier, ending a five-month chase for new capital.

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Air France-KLM will invest up to $144.5 million and receive as much as a 19.9% of SAS, with the option to take a controlling interest after two years under certain conditions, according to a statement Tuesday.

The deal promises to further the post-Covid consolidation of Europe’s aviation industry around Air France-KLM and two other major carrier groups, Deutsche Lufthansa AG and IAG SA. IAG is taking over Spain’s Air Europa, while Lufthansa has agreed to buy part of Italy’s state-owned ITA Airways, the successor to Alitalia.

An alliance with SAS will strengthen Air France-KLM’s position in the Nordics, source of a reliable stream of active travelers, even as it targets Portugal’s flag carrier TAP to the south. As part of the deal, SAS will exit Lufthansa’s Star Alliance to eventually join the SkyTeam union co-founded by Air France.

“This project confirms Air France-KLM’s ambition to play an active role in the well-expected consolidation in Europe,” the Franco-Dutch airline group said in response to a Bloomberg query. The plan to ally with SAS “has no impact on the group’s strong interest in TAP and its ability to participate in the privatization process.”

The funding package includes equity, convertible debt and the refinancing of a bankruptcy loan by Castlelake. The government of Denmark and Denmark’s Lind Invest ApS are also part of the new ownership group.

Shareholder Wipeout

The reorganization under US Chapter 11 bankruptcy rules will wipe out existing shareholders of SAS, including stakes held by the governments of Sweden and Denmark. But the 77-year-old airline gains financial resources and a strong partner as it rebuilds. SAS filed for bankruptcy in July 2022, after the Covid-19 pandemic disrupted travel, fuel prices rose and its pilots went on strike.

“The benefit of being in a larger home is something that’s very attractive,” allowing SAS to bring in added revenue over a shorter period of time, Chief Executive Officer Anko van der Werff said in an interview. “That’s clearly very appealing to us.”

New Plan

SAS has said it aims to emerge from the court process around year-end, after cleansing its books of some 20 billion Swedish kronor ($1.8 billion) in debt. The company extended the timeline for bids from potential investors twice, pushing the deadline back as recently as last month.

The airline was founded in 1946 through the merger of three carriers from Sweden, Norway and Denmark, and in the ensuing decades forged an unparalleled role connecting the region with the rest of the world.

Prior to the equity raise, the governments of Denmark and Sweden each owned 21.8% of SAS. Sweden had indicated it would accept a conversion of debt it was owed into equity, but wouldn’t participate in a new capital raise. Norway’s government also said it wouldn’t contribute any new equity after selling its last stake in the company in 2018.

(Updates with comment from Air France-KLM, added details on deal)

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