Air France-KLM Group seeks up to a 19.9% share of Scandinavian Airlines, which had filed voluntary petitions under Chapter 11 of the Bankruptcy Code of the United States on Tuesday, July 5, 2022 in the United States Bankruptcy Court for the Southern District of New York in order to accelerate the transformation of the airline.
Air France-KLM Group Seeks 19.9% Share of Scandinavian Airlines
Scandinavian Airlines — which is also known as SAS — and some of its subsidiaries were seeking ways towards building a sustainable future for the financially troubled airline during the ongoing bankruptcy process. Although Air France-KLM Group was declared the winning bidder consortium in its exit financing solicitation process, the details and final documentation for the agreed transaction structure remain to be finalized between the investors and the airline.
“Should this transaction be approved and all the other conditions (including regulatory clearances and cancellation of all existing shares of stock of SAS AB) be satisfied, the Consortium, together with the Danish State, would invest USD 1.175 billion of which USD 475 million in common shares and USD 700 million in the form of secured convertible bonds”, according to this official press release from Air France-KLM Group. “Air France-KLM’s investment would represent a total of USD 144.5 million, of which USD 109.5 million would be invested in common shares and USD 35 million would be provided in the form of secured convertible bonds.”
Additionally, upon completion of the transaction for the reorganized SAS AB — which is the listed parent company of SAS Group that includes Scandinavian Airlines:
- Castlelake, L.P. would hold approximately 32.0 percent of the equity and 55.1 percent of the convertible debt;
- The Danish State would hold approximately 25.8 percent of the equity and 29.9 percent of the convertible debt;
- Air France-KLM would hold approximately 19.9 percent of the non-controlling equity stake and 5.0 percent of the convertible debt;
- Lind Invest would hold approximately 8.6 percent of the equity and 10.0 percent of the convertible debt; and
- The remaining approximately 13.6 percent of the equity would most likely to be distributed among — and held by — certain creditors who may receive recovery in equity.
If the agreement is officially finalized, Scandinavian Airlines will likely transition from being a member of Star Alliance — of which it was one of the five founding members on Wednesday, May 14, 1997 — to the SkyTeam Alliance, of which Air France and KLM Royal Dutch Airways are founding members.
“As part of the transaction, SAS is intended to eventually join the SkyTeam Alliance (“SkyTeam”), of which Air France-KLM is a founding member, and exit the Star Alliance, subject to any relevant approvals and emergence from the chapter 11 process”, according to this official press release from Scandinavian Airlines. “The details and final documentation for the agreed transaction structure remain to be finalized between the Investors and SAS. The transaction will also need to be approved as part of SAS’ chapter 11 plan of reorganization (the “Chapter 11 Plan”). The confirmation and effectiveness of the Chapter 11 Plan remain subject to various conditions precedent, including approval by the U.S. Bankruptcy Court for the Southern District of New York (the “U.S. Court”), which will require the solicitation of votes on the Chapter 11 Plan from certain creditors, approvals from various regulatory authorities and the completion of a Swedish company reorganization (as described below). No approval is expected to be required from the existing shareholders of SAS AB for the transaction.”
Obtaining certain approvals for the successful completion of the deal will be necessary, including from:
- The United States Bankruptcy Court for the Southern District of New York
- Antitrust authorities
- Civil aviation authorities
- The European Commission
- European Free Trade Association Surveillance Authority — as applicable
- Scandinavian Airlines leaving Star Alliance
- The implementation of a Swedish Reorganization at the SAS AB level
- Other customary conditions
Scandinavian Airlines will continue to operate and serve its customers as usual throughout the implementation of the transaction, which is likely to entail a filing by its listed parent company for a company reorganization in Sweden in 2024.
As a result of that process, all of the common shares of SAS AB and listed commercial hybrid bonds are expected to be cancelled, redeemed, and delisted — which is currently expected to occur during the second quarter of 2024. Consequently, no value is expected for existing shareholders in SAS AB; and only a modest recovery is expected for the holders of commercial hybrid bonds.
In parallel to the transaction, and further to its joining of the SkyTeam alliance, SAS AB will seek to establish a commercial cooperation with Air France-KLM Group and its airlines — subject to customary approvals — to the benefit of customers in the Scandinavian region through increased connectivity.
Final Boarding Call
This announcement caught many people by surprise for a number of reasons — including the unusual move of the founding member of one airline alliance to leave to become a member of another alliance. It is also bad news to existing investors who have already lost money in the corporation, whose stock will become worthless.
The future was already looking rather bleak for Scandinavian Airlines with the issues that it faced. For example, a labor dispute with its pilots last year was expected to cost approximately $13 million per day — which the airline simply could noal afford.
Regardless of the benefits and disadvantages of this deal, its outcome will significantly change the commercial aviation landscape in Europe. How significant that change will be remains to be seen.
Photograph ©2008 by Brian Cohen.
