Did it strike you as odd that SAS, a joint airline of Denmark and Sweden, declared bankruptcy in the United States? It should not have…credit that to the generous bankruptcy system in the USA.
SAS Files Bankruptcy In USA
After pilots announced a strike, leading SAS to cancel over 60% of its flights, the airline accelerated its bankruptcy protection filing in New York on Tuesday.
This is a strategic bankruptcy in every sense of the word. While SAS is facing a serious financial situation, it remains liquid and likely could have lasted the summer if the pilots’ strike was limited. But like the U.S. carriers who each took turns seeking bankruptcy protection, SAS is playing a game of chess, trying to survive in its current form by using the U.S. court system to break its unions, renegotiate debt, and shed other obligations.
The primary goal is to save 7.5 billion Swedish crowns ($715 million) per year in costs, convert $1.9 billion in debt to equity, and raise nearly $1 billion in fresh equity. SAS hopes that its U.S. filing will accelerate the restructure process that was announced earlier in 2022.
“SAS aims to reach agreements with key stakeholders, restructure the company’s debt obligations, reconfigure its aircraft fleet, and emerge with a significant capital injection,”
SAS has historically offered a rich route network to Asia, however its Asian routes have become unviable due to the Russian airspace closure and continued pandemic polices in East Asia. Consequently, a central part of the restructuring plan is dumping aircraft leases for planes intended for Asia. CEO Anko van der Werff told Reuters:
“We don’t know when the Russian airspace is going to open again and we cannot pay for those aircraft because that will not allow us to attract investors. New investors will say ‘you have to clean up, otherwise we will not invest.”
Meanwhile, the pilots unions representing Danish SAS pilots called the move to blame the bankruptcy on striking pilots “beneath contempt,” noting the filing revealed it had been months in the making. Live and Let’s Fly will discuss union concerns and the malaise at SAS in a future post.
SAS expects to exit bankruptcy in 9-12 months.
Why Is SAS Filing Bankruptcy In The USA?
All this leads us back to our primary question. Why the USA? Here’s why:
- Declaring bankruptcy in the USA is easy for companies that do business within the USA
- Unlike the bankruptcy laws of many other nations, SAS did not have to be insolvent to file bankruptcy in the USA
- The Chapter 11 filing freezes all SAS assets, prohibiting creditors from seizing assets during the proceedings (provided those companies also are subject to U.S. jurisdiction)
- During the bankruptcy process, SAS can remain in control of its assets, rather than see them subject to full control by a trustee (a trustee will exercise oversight)
- The U.S. process will move faster than many other jurisdictions, allowing SAS to emerge from protection faster
SAS has filed for bankruptcy relief in the USA, hoping that the U.S. system will protect its assets and allow it to restructure on an expedited timeline. Meanwhile, SAS expects this move to wipe out about half of its summer schedule, with passengers on both sides of the Atlantic feeling the pain.