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SAS Group Launches Core SAS - Renewed Strategic Approach for a Competitive and Profitable Airline, Including a Rights Issue of SEK 6 Billion

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SAS Group Launches Core SAS - Renewed Strategic Approach for a Competitive and Profitable Airline, Including a Rights Issue of SEK 6 Billion Source: SAS AB February 03, 2009 01:38 ET SAS Group launches Core SAS - renewed strategic approach for a competitive and profitable airline, including a rights issue of SEK 6 billion NOTFORRELEASE,PUBLICATIONORDISTRIBUTIONINAUSTRALIA,CANADA,JAPANORTHE UNITEDSTATES SASGrouplaunchesCoreSAS-renewedstrategicapproachforacompetitiveand profitableairline,includingarightsissueofSEK6billion Inresponsetothecurrentglobaloperatingenvironmentandinternalchallenges andwiththeaimofstrengtheningSASGroup's(“SAS”)longtermcompetitive positioningandprofitability,SASmanagementandBoardofDirectorshave decidedonanewstrategicdirectionfortheGroup.TherenewedSASstrategy, CoreSAS,isintendedtoprovidethekeyelementsnecessarytosupportanew competitiveSAS,includinganew,streamlinedandsimplifiedorganization.The strategy,theimplementationofwhichwillcommencein2009,aimstocreatean SASthatgenerateslong-termvalueforshareholdersandpro-activelyaddresses thecurrentindustrydynamics,internalchallengesandtheglobalrecessionary environment. Asaresultofthere-organisation,about3,000SASemployeeswillbemade redundant.Inaddition,5,600employeeswillleavetheGroupaspartof operationsthatwillbedivestedoroutsourced.Ofthese,Spanairaccountsfor approximately3,000employees.CoreSASwillresultinamoreefficientand simplifiedSASwithastrengthenedcustomerfocus. Inbrief,SAS'snewstrategicapproach,CoreSAS,isbuiltonfivepillars: • FocusonNordichomemarket o DivestmentofSpanair,airBaltic,Spirit,AirGreenland,BMI,Estonian Airways,Skyways,CubicandTrust(ofwhichSpanairisalreadysignedand airBalticisalreadysignedandclosed) o CertainoperationsofSASGroundServices,SASTechnicalServicesandSAS Cargoareexpectedtobediscontinuedand/oroutsourcedtothirdparties • Focusonbusinesstravellersandastrengthenedcommercialoffering o Downsizingofthenetworkbyreducingcapacitytofocusmoreonprofitable businessrouteswhichthecompany,basedon2008accounts,estimateswouldhave hadanpre-taxearningseffectofapproximatelyMSEK800;fleetreductionwithin ScandinavianAirlinesofabout10percentinshort-hauland18percentin long-haul o “ServiceandSimplicity”concepttobeintroducedwithexpandedcustomer offering • Improvedcostbase o CostreductionprogramofapproximatelySEK2.7billion(excl.collective agreements)running2009-2011 o Breakthroughincollectiveagreementnegotiationsexpectedtoleadtoannual savingsofapproximatelySEK1.3billion • Streamlinedorganizationandcustomerorientedculture o Operationsofnationalsubsidiariestobetransferredintoneworganization o Efficiencyenhancementofalloperations • Strengthenedcapitalstructure o RightsissueofapproximatelySEK6billiontofacilitatetheimplementation ofCoreSAS o Extensionofcertaindebtfacilities ThefollowingtablesetsouttheeffectsthatCoreSASwouldhavehadontheSAS Group's2008results: (SEKbn,FYRevenueEBTAdj.ND1FTEs2Fleet4 2008) SASGroup (before restructuring53-0.422.520,400237 costsand non-recurring items) Spanair (incl.10-2.26.033,00061 restructuring costs) Total63-2.628.523,400298 1.Focuson Nordichome-125+2.56-7.08-5,200-61 market 2.Focuson business travellers and-3+0.87-2.0-1,500-20 strengthened commercial offering 3.Improved+3.6-1,700 costbase 4. Streamlined organization+0.4-400 andcustomer oriented culture 5. Strengthened-6.0 capital structure TotalCore SASeffects (excl.Core-15+7.3-15.0-8,800-81 SAS restructuring costs) %difference~-25%n.m.~-50%~-40%~-30% Note:Allfiguresareapproximate 1) Adjustednetdebt(financialnetdebt+7xnetoperatingleasingcosts) 2) AveragefulltimeemployeesduringQ42008 3) Includingonlylease-relatednetdebtofSpanair 4) Asofendof2008.IncludinggroundedQ400sinprocessofbeingphasedout 5) SpanairandexternalrevenuesfromSpirit,Cubic,TrustandSGSInternational 6) Basedonpreliminaryevaluationof2008EBITforsubsidiariesthatwillbeor havebeendivested,excl.anypotentialP&Leffect(gains/losses)fromthe divestments 7) Basedonpreliminaryevaluationoftotallossin2008ofroutestakenaway, adjustedformarketeffectsandeffectfromimprovedunionagreements 8) OfwhichSEK6billionrelatestoSpanair(seenote3above)andSEK1 billionrelatestootherdivestmentsofnon-coreassets “Toaddressoneofthemostsevereeconomicdeclinesthatweprobablyhaveever seen,inadditiontoourinternalchallenges,arenewedstrategicapproachis needed.TheprincipalfeatureofCoreSASisarenewedfocusonwhatwedobest: servingourNordichomemarketandourcorecustomers,businesstravellers. Combinedwithanew,streamlinedorganization,asubstantiallyimprovedcost base,astrengthenedcapitalstructure,andamorecustomer-orientedculture,we havealltherightmeasuresinplacetocreateshareholdervaluegoingforward,” saysSASPresidentandCEOMatsJansson. FocusonNordichomemarket ToretaintheGroup'sstrongmarketpositionintheNordicmarket,companies thatarenotdirectlyincludedincoreoperationswillbedivested.Inaddition tothealreadycommunicateddivestmentsofSpanairandairBaltic,theGroupalso intendstodivestSpirit,AirGreenland,BMI,EstonianAir,Skyways,Cubicand Trust.Thesedivestments,ifexecutedaccordingtoplan,wouldleadtoan improvementintheSASGroup'scashflowandleverage. SASCargowillfocusonsellingbellycargocapacityfortheGroup'sairline operations.RegardingSASTechnicalServices,theSASGroupalreadyoutsources maintenancetoexternalsuppliersandthisisexpectedtoincreaseinthe future.OutsourcingwithinSASGroundServiceswillalsobeexpanded.ForSAS GroundServices'internationaloperations,theGroupiscurrentlyconsidering alternativeoperationalsolutions,suchasdivestmentorcooperation. Focusonbusinesstravellersandastrengthenedcommercialoffering TheGroup'snetworkwillbefurtherstreamlined,withafocusonbusiness destinations.Thenetworkwillbeadaptedtofacilitateprofitabilitybyclosing unprofitableroutesandwillbedimensionedaccordingtotheneedsofbusiness travellers.Theaircraftfleetwillbereducedbyanadditional14aircraftor about10percentto130aircraftwithinScandinavianAirlinesonshortand medium-haulroutes.Onlong-haulroutes(outsideEurope)thefleetwillbe reducedbytwoaircraftfrom11tonineandunprofitablerouteswillbeclosed. WithintheframeworkofCoreSAS,theGroupislaunchingthe“Serviceand Simplicity”conceptwiththeaimofminimizingtraveltimeandmaximizing perceivedcustomervalue. Improvedcostbase Benchmarkingtorelevantcompetitorsbasedon2007figuresindicatesacostgap inrelationtorelevantcompetitorsofapproximatelySEK4billionafterfull earningseffectofthecostprogramofStrategy2011ofSEK1billion.CoreSAS includesmeasurestofurtherreducethisgapbyapproximatelySEK3billion, comprisingSEK1.7billionfromanewcostprogramandSEK1.3billioninannual savingsthroughtherecentrenegotiationofallcollectiveagreements.Thereis afurthercostgapofSEK1billion,mainlyrelatedtocollectiveagreements, whichthecompanywillcontinuetoseektoaddress.Morethanhalfofthecost programisexpectedtobeimplementedin2009.Oftheremainder,themajorityis expectedtoaffectresultsin2010andthebalancein2011. Streamlinedorganizationandcustomerorientedculture Asimplified,efficientanddecisionorientedorganizationwillbeimplemented throughefficiency-enhancementofthecentralorganizationandarestructuring ofthesubsidiaries.Thenationalsubsidiaries,whichtodatehavehadoverall operationalresponsibilityintheirrespectivecountries,willceasetoexistas separatecompanies.Thecurrentlong-hauloperation,SASInternational,will ceasetobeaseparatebusinessunit.InCopenhagen,StockholmandOslo,three newbaseorganizationswillbeformedaspartofthecentralorganizationto assumeresponsibilityforshortandlong-haulserviceswithinCoreSAS,ofwhich SASGroundServiceswillalsobeanoperationalpart. ThenumberofpersonnelintheSASGroupwillbereducedbyapproximately9,000 FTE,fromapproximately23,000toapproximately14,000.About5,000FTEwillbe affectedbythedivestmentofoperations,ofwhichSpanairaccountsfor3,000. Inaddition,3,500FTEwillbeaffectedbyoutsourcing,productioncutbacksand reorganization. Strengthenedcapitalstructure TofacilitatetheimplementationofCoreSASandthelong-termcompetitiveness forSAS,theBoardofDirectorsofSAShasresolvedtoraiseapproximatelySEK6 billionthrougharightsissueofordinaryshareswithsubscriptionrightsfor shareholders.Atthislevel,therightsissuewillincreaseSAS'sequityfrom approximatelySEK9billiontoapproximatelySEK15billion. Inaddition,SASanditslendingbankshaveagreed,subjecttocertain conditions,anextensionofitsMEUR366revolvingcreditfacilitybytwoyears (extendingmaturitytoJune2012)aswellasextensionsofthreeundrawn bilateralcreditfacilitiesforatotalamountofSEK1.25billionbytwoyears (extendingmaturityatleasttoJune2012).Finally,anadditionalcredit facilityintheamountofMUSD156has,subjecttocertainconditions,been extendedby2years(extendingmaturitytoApril2013).Consequently,intotal, SAShasextendeddebtequivalenttoanamountofSEK6.5billion. Rightsissue TheresolutionoftherightsissueissubjecttoapprovaloftheExtraordinary GeneralMeetingwhichisintendedtobeheldon13March2009(separatenotice tobedistributed).Therecorddateforparticipatingintherightsissuewill be18March2009andthesubscriptionperiodwillbe23March2009to6April 2009orsuchlaterdateasdecidedbytheBoardofDirectors.Theamountby whichthesharecapitalcanbeincreased,thenumberofsharestobeissuedand thesubscriptionpriceshallbedeterminedbytheBoardofDirectorsnotlater than12March2009.Thenewlyissuedshareswillrankparipassuinallrespects withtheexistingordinaryshares.Inordertofacilitatetherightsissue,the BoardofDirectorsofSASalsoproposesareductionofthesharecapitalbySEK 1,233,750,000withoutredemptionofshares,implyingalowerquotavalueperSAS shareofSEK2:50. TheSwedishGovernment,theDanishGovernmentandtheNorwegianGovernmenthave separatelyexpressedtotheBoardtheirsupportforthisprocessandstatedthat theywillasktheirrespectiveparliamentsforapprovalsto,subjecttocertain conditions,subscribefortheirrespectiveproratasharesintherightsissue. TheKnutandAliceWallenbergFoundation,throughFoundationAssetManagement (FAM),hasexpresseditssupportforthisprocessanditswillingnessto,
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