SAS Group launches new strategic plan

The renewed SAS strategy, Core SAS, is intended to provide the key elements necessary to support a new competitive SAS, including a new, streamlined and simplified organization. The strategy, the implementation of which will commence in 2009, aims to create an SAS that generates long-term value for shareholders and pro-actively addresses the current industry dynamics, internal challenges and the global recessionary environment.

As a result of the re-organisation, about 3,000 SAS employees will be made redundant. In addition, 5,600 employees will leave the Group as part of operations that will be divested or outsourced. Of these, Spanair accounts for approximately 3,000 employees. Core SAS will result in a more efficient and simplified SAS with a strengthened customer focus.

In brief, SAS's new strategic approach, Core SAS, is built on five pillars:

· Focus on Nordic home market
· Focus on business travellers and a strengthened commercial offering
· Improved cost base
· Streamlined organization and customer oriented culture
· Strengthened capital structure

Focus on Nordic home market

To retain the Group's strong market position in the Nordic market, companies that are not directly included in core operations will be divested. In addition to the already communicated divestments of Spanair and airBaltic, the Group also intends to divest Spirit, Air Greenland, BMI, Estonian Air, Skyways, Cubic and Trust. These divestments, if executed according to plan, would lead to an improvement in the SAS Group's cash flow and leverage.

SAS Cargo will focus on selling belly cargo capacity for the Group's airline operations. Regarding SAS Technical Services, the SAS Group already outsources maintenance to external suppliers and this is expected to increase in the future. Outsourcing within SAS Ground Services will also be expanded. For SAS Ground Services' international operations, the Group is currently considering alternative operational solutions, such as divestment or cooperation.

Focus on business travellers and a strengthened commercial offering

The Group's network will be further streamlined, with a focus on business destinations. The network will be adapted to facilitate profitability by closing unprofitable routes and will be dimensioned according to the needs of business travellers. The aircraft fleet will be reduced by an additional 14 aircraft or about 10 percent to 130 aircraft within Scandinavian Airlines on short and medium-haul routes. On long-haul routes (outside Europe) the fleet will be reduced by two aircraft from 11 to nine and unprofitable routes will be closed. Within the framework of Core SAS, the Group is launching the "Service and Simplicity" concept with the aim of minimizing travel time and maximizing perceived customer value.

Improved cost base

Benchmarking to relevant competitors based on 2007 figures indicates a cost gap in relation to relevant competitors of approximately SEK 4 billion after full earnings effect of the cost program of Strategy 2011 of SEK 1 billion. Core SAS includes measures to further reduce this gap by approximately SEK 3 billion, comprising SEK 1.7 billion from a new cost program and SEK 1.3 billion in annual savings through the recent renegotiation of all collective agreements. There is a further cost gap of SEK 1 billion, mainly related to collective agreements, which the company will continue to seek to address. More than half of the cost program is expected to be implemented in 2009. Of the remainder, the majority is expected to affect results in 2010 and the balance in 2011.

Streamlined organization and customer oriented culture A simplified, efficient and decision oriented organization will be implemented through efficiency-enhancement of the central organization and a restructuring of the subsidiaries. The national subsidiaries, which to date have had overall operational responsibility in their respective countries, will cease to exist as separate companies. The current long-haul operation, SAS International, will cease to be a separate business unit. In Copenhagen, Stockholm and Oslo, three new base organizations will be formed as part of the central organization to assume responsibility for short and long-haul services within Core SAS, of which SAS Ground Services will also be an operational part.

The number of personnel in the SAS Group will be reduced by approximately 9,000 FTE, from approximately 23,000 to approximately14,000. About 5,000 FTE will be affected by the divestment of operations, of which Spanair accounts for 3,000. In addition, 3,500 FTE will be affected by outsourcing, production cutbacks and reorganization. Strengthened capital structure

To facilitate the implementation of Core SAS and the long-term competitiveness for SAS, the Board of Directors of SAS has resolved to raise approximately SEK 6 billion through a rights issue of ordinary shares with subscription rights for shareholders. At this level, the rights issue will increase SAS's equity from approximately SEK 9 billion to approximately SEK 15 billion.

In addition, SAS and its lending banks have agreed, subject to certain conditions, an extension of its MEUR 366 revolving credit facility by two years (extending maturity to June 2012) as well as extensions of three undrawn bilateral credit facilities for a total amount of SEK 1.25 billion by two years (extending maturity at least to June 2012). Finally, an additional credit facility in the amount of MUSD 156 has, subject to certain conditions, been extended by 2 years (extending maturity to April 2013). Consequently, in total, SAS has extended debt equivalent to an amount of SEK 6.5 billion.



(c) Centre for Asia Pacific Aviation. Date posted: 04-Feb-08