SAS flies for chapter 11 bankruptcy in the United States

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SAS, the Scandinavian airline, has been in financial turmoil for some time and had announced a plan to restructure its business earlier this year in an attempt to get its house in order. Now, however, with its pilots out on strike, the airline has filed for Chapter 11 bankruptcy in the United States.

Here’s the statement that SAS has released:

“SAS and certain of its subsidiaries today filed voluntary petitions under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York, in the United States. The purpose of the filing is to accelerate SAS’ transformation by implementing key elements of its SAS FORWARD plan. These steps are consistent with SAS’ announcement on May 31, 2022, that SAS FORWARD involves complex multiparty negotiations and that the Company might seek to utilize one or more court restructuring proceedings designed to assist in the resolution of SAS’ financial difficulties and help accelerate the implementation of SAS FORWARD.”

SAS Forward is the name of the restructuring plan that was announced back in February and was the airline’s attempt to get back onto an even keel without having to resort to the US bankruptcy code. Unfortunately, yesterday’s collapse of talks between management and the pilots’ union and the resulting strike that was triggered, has sent the airline over the edge.

Under chapter 11 bankruptcy, the airline is protected from its creditors and is given a chance to restructure itself into a viable organization – most of the major US airlines have used chapter 11 at least once to bail themselves out of the various messes that incompetent management teams have made – and under normal circumstances, SAS would be able to continue to do business as normal.

What SAS is facing, however, are not “normal circumstances” because it’s currently missing a very key business component that every airline needs – pilots.

SAS says that its operations and flight schedule are unaffected by the chapter 11 filing and that it will continue to serve its customers as normal, but it is also forced to admit that the strike called by the SAS Scandinavia pilots’ unions will have a significant impact on its schedule.

In the short-term, SAS says that it “expects to meet its go forward business obligations” but it has also said that if the strike drags out into a prolonged action, its impact “could become material” – essentially, the strike and not chapter 11 may be what brings down the airline.

Anko van der Werff, President and Chief Executive Officer of SAS, is quoted as having said the following:

“Over the last several months, we’ve been working hard to improve our cost structure and improve our financial position. We are making progress, but a lot of work remains and the on-going strike has made an already challenging situation even tougher. The chapter 11 process gives us legal tools to accelerate our transformation, while being able to continue to operate the business as usual. We will continue to build back the network connectivity, products and service our customers expect, and we will continue to do so throughout this process and beyond. I am convinced that this process will enable us to become an even better airline for our customers and a stronger business partner in the years to come. Becoming a more competitive airline will require the full team’s effort and burden-sharing from all stakeholders. We urge SAS Scandinavia pilots’ unions to end their strike and engage constructively as part of this process.”

Right now, the biggest threat to customers with SAS reservations is the pilots’ strike action and not the chapter 11 process, but the chapter 11 process may make it harder for passengers to claim refunds should their flights get cancelled and they find themselves forced to make alternate arrangements.

I’m not a bankruptcy expert so I don’t know what protection ch. 11 gives the airline from customers who want their money back but as ch. 11 is designed to protect a business from its creditors and as customers with refund rights are effectively unsecured creditors, I suspect that refunds may be hard to get if the airline decides that it needs the funds to maintain some semblance of liquidity.

For the time being this is “wait and see” time. We’ll have to see how SAS deals with its pilot shortage, we’ll have to see how the pilots react to the prospect of not having an employer, and we’ll have to see how SAS reacts to customers whose travel plans are being affected.

Things will probably be a lot clearer by the end of the week.

Bottom line

Scandinavian airline SAS has filed for chapter 11 bankruptcy in the United States as it tries to accelerate the restructuring process that management says is essential to its survival. Right now, however, the airline’s biggest problem (and the biggest problem for customers) isn’t the bankruptcy process, it’s the pilots’ strike that is threatening to ground most of the SAS fleet. Good luck to all affected by this, the next few days are probably going to be a rocky ride.