Air France-KLM will take a minority stake in bankrupt Scandinavian airline SAS as part of a $1.18 billion U.S. Chapter 11 restructuring deal unveiled Tuesday. The deal is the latest in a wave of European airline consolidation that includes the Lufthansa Group’s pending acquisition of Italy’s ITA Airways and International Airline Group’s proposed takeover of Spain’s Air Europa.
The Paris-based airline group will invest $145 million for an up to 19.9% stake in SAS as part of an investor consortium that also includes U.S. investment firm Castlelake, Danish firm Lind Invest, and the government of Denmark. If approved by the bankruptcy court and regulators, Castlelake will own 32% of SAS, Denmark 26%, and Lind less than 9%. The deal includes $475 million in new equity and $700 million in convertible bonds.
And, as part of the deal, SAS will join the SkyTeam Alliance with Air France and KLM. It will leave the Star Alliance where it was a founding member in 1997. No timeline for the alliance transition was given.
“This is terrific news,” SAS CEO Anko Van der Werff said Tuesday on the deal that will allow the airline to exit bankruptcy as soon as the second quarter of 2024.
SAS began its restructuring in 2022 when Van der Werff unveiled the “SAS Forward” plan. The program called for 7.5 billion Swedish kroner ($675 million) in cost cuts and new equity in the airline. However, SAS faced difficulties securing concessions from the companies that lease it aircraft, and filed for Chapter 11 that July. The airline has since achieved its targeted cost savings with just the equity component outstanding. The Castlelake-led deal was selected from multiple offers, executives said.
Not everyone, however, is excited about SAS’ new owners. Current shareholders will see their equity entirely wiped out. And existing creditors will receive as little as $0.05 on each $1 of their claims. In addition, many are wondering if post-bankruptcy SAS will keep its headquarters in Stockholm, where it has been based since its founding 1946, or move to Copenhagen, which is home to the airline’s largest hub.
“You can take Sweden out of SAS, but you cannot take SAS out of Sweden,” Van der Werff said in response to questions over the airline’s future headquarters. He referred to the Swedish state’s recent decision not to maintain an equity investment in the airline.
SAS Chairman Carsten Dilling added that Oslo and Stockholm remain “important hubs” in the airline’s three-hub network. He described Copenhagen as a “very important hub.”
The deal increases Air France-KLM’s share of the European market in an area that has long been seen as Lufthansa’s backyard. Air France-KLM with SAS would see its share of intra-Europe airline seats increase by nearly 3 percentage points to just over 9% based on third quarter numbers, Cirium Diio data show. The group’s share in Scandinavia — Denmark, Norway, and Sweden — would jump from 5% to 32%.
Among Europe’s large network airlines, Lufthansa arguably has the most to lose with Air France-KLM shifting SAS to its orbit. Not only does it lose a Star partner, but it also sees one of its largest competitors gaining a significant foothold just to its north. The Lufthansa Group had an 8.5% share of seats in Scandinavia — the most of any European network carrier after SAS — in the third quarter, according to Cirium Diio. The group’s budget arm Eurowings maintains a base in Stockholm.
Norwegian Air, the second largest airline in Scandinavia with a 24% share of seats in the third quarter, would also face increased competitive pressure from the deal. It has recently focused on expanding its share of the Norwegian corporate market — at the expense of SAS — with a revamped loyalty program, and a deal to acquire regional airline Wideroe.
SAS’s commercial tie up with Air France-KLM will take time. The bankruptcy court must approve the equity package and then European regulators the investment before it can move forward. All of this will come in “due course,” Van der Werff said.
The partnership will improve connectivity between Scandinavia and Air France and KLM’s networks, Van der Werff said. It will also include a tie up between SAS’ EuroBonus loyalty program and Air France-KLM’s Flying Blue program.
Van der Werff did not comment on whether SAS planned to join Air France-KLM’s transatlantic joint venture with Delta Air Lines and Virgin Atlantic. SAS, even as a member of Star, was never part of fellow Star partners Air Canada, Lufthansa, and United Airlines’ transatlantic tie up.
“Air France-KLM looks forward to establishing strong commercial ties with SAS,” Group CEO Ben Smith said in a statement. “This cooperation will allow Air France-KLM to enhance its position in the Nordics and improve connectivity for Scandinavian and European travelers.”
The group has the option to take a “controlling” stake in SAS after two years.
Air France-KLM did not say whether its proposed investment in SAS affected its interest in TAP Air Portugal. The state-owned Portuguese airline kicked off its privatization at the end of September. The Franco-Dutch airline group is widely viewed as a leading suitor in the bidding.
The story has been updated to include more details of Air France-KLM’s proposed investment in SAS, and the competitive ramifications.
