SAS — Capital/Financing Update 2010

Feb 9, 2010

Additional cost savings initiatives of SEK 2.0 billion and measures to strengthen the balance sheet including debt maturity extensions and a...

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN AUSTRALIA, CANADA, JAPAN

OR THE UNITED STATES

Additional cost savings initiatives of SEK 2.0 billion and measures to

strengthen the balance sheet including debt maturity extensions and a...

Additional cost savings initiatives of SEK 2.0 billion and measures to

strengthen the balance sheet including debt maturity extensions and a

proposed rights issue of approximately SEK 5 billion

- Implementation of the Core SAS strategy has proceeded

according to plan with approximately 66 percent of the SEK 5.3 billion

of annual cost savings implemented with a significant cost reduction

effect of SEK 2.2 billion achieved already in 2009

- New cost savings initiatives of SEK 2.0 billion have been

identified bringing the Core SAS cost savings program to a total of SEK

7.3 billion. In addition to these cost savings initiatives, a letter of

intent has been signed with the flight deck and cabin unions with the

clear commitment of saving an additional SEK 0.5 billion. The remaining

result effect, amounting to SEK 5.5 billion from the SEK 7.3 billion and

the additional SEK 0.5 billion cost savings initiatives, should create

earnings momentum in 2010/2011

- Agreement has been reached to improve terms with

lending banks in particular to secure an extension of four revolving

credit facilities by one year to 2013 (total of approximately SEK 5

billion) and adjust the covenant profile to provide additional

flexibility

- Process initiated with the plan to secure refinancing or

extension of maturities of majority of 2010 bond maturities

(approximately SEK 2 billion) in the public and private debt markets in

the coming months

- Rights issue of approximately SEK 5 billion with preferential

rights for SAS shareholders which supports the implementation of the

remaining parts of the Core SAS strategy. It is supported by SAS'

largest shareholders and a consortium of underwriting banks, subject to,

amongst other things, the refinancing of the bonds and final agreement

with flight deck and cabin unions. Terms of the rights issue, including

subscription price, are expected to be announced on 6 April, 2010. The

rights issue is subject to approval by an Extraordinary General Meeting

planned for 7 April, 2010. The subscription period is expected to run

from and including 15 April to and including 29 April, 2010

"We are confident that Core SAS is the right strategy. The unprecedented

severity of the market downturn has been far worse than anticipated in

the original Core SAS plan and has had an adverse impact on business

travel, affecting yields and thus our revenues and liquidity position.

In response to this, we are now enhancing the Core SAS strategy with an

additional SEK 2.0 billion of cost savings initiatives, bringing the

total cost savings program to SEK 7.3 billion. In addition, we have

signed a letter of intent with the unions with a clear commitment to

provide another SEK 0.5 billion in cost reductions. We are confident

that these significant cost reductions, coupled with the refinancing and

the proposed rights issue, will give SAS the strength and flexibility it

needs to compete effectively and be well positioned for the market

recovery" says SAS President and CEO Mats Jansson.

Background and reasons

Original Core SAS strategy progressing according to plan

In February 2009, SAS Group launched Core SAS, a renewed strategic

approach in response to the weak macroeconomic environment and the

internal challenges within SAS, with the aim of strengthening the

Group's long-term position as a competitive and profitable airline. At

launch, Core SAS included a large cost savings program of SEK 4 billion,

which was gradually increased to SEK 5.3 billion during 2009.

The implementation of the initiatives related to the original Core SAS

strategy has proceeded according to plan and approximately 66 percent of

the SEK 5.3 billion of cost savings have been implemented. Some of the

most important actions taken during 2009 under the Core SAS strategy

include the divestments of the holdings in Spanair, bmi and airBaltic,

the reduction of the Group's fleet by 18 aircraft, the closure of 45

unprofitable routes, the streamlining of the organisation and the

completion of the rights issue of SEK 6 billion in April 2009.

As a result of the implementation of the Core SAS strategy, the Group

has been able to lower its unit cost (CASK[1] - fuel and currency

adjusted) by 1.5 percent in 2009 despite substantial capacity

reductions. The new commercial concept "Service And Simplicity" has,

together with the increased focus on business travellers, contributed to

an improvement in customer satisfaction[2], and during 2009 SAS was the

leading European airline in terms of punctuality[3] and baggage

delivery[4].

New measures to strengthen the Core SAS cost savings program by an

additional SEK 2.0 billion

In order to further improve the Group's profitability and to reduce its

cost base, the Core SAS cost savings program will be increased

considerably with new initiatives representing a total of SEK 2.0

billion in annual cost reductions, bringing the Core SAS cost savings

program to a total of SEK 7.3 billion. The implementation of the new

measures has been initiated with earnings impact expected during 2010

through 2012, with the majority of the effects expected in 2010. The

cost savings are estimated to affect results in seven main areas:

- Administration (a further centralization and efficiency

enhancement leading to personnel reductions) - MSEK ~550

- Permanent personnel reductions in production - MSEK ~100

- Lean/efficiency program in SGS (efficiency improvements in

process and planning) - MSEK ~250

- Efficiency measures within SAS Tech (structural changes such

as maintenance program and set-up of line stations, and additional FTE

reductions) - MSEK ~300

- Additional procurement related savings (e.g. stop-buying

initiative, transportation and procurement process improvements) - MSEK

~250

- Blue1/Widerøe/Cargo initiatives (e.g. salary freeze) - MSEK

~50

- Efficiency measures dependent on changes in certain collective

agreements (e.g. scheduling and process improvements) - MSEK ~500

In addition to the SEK 2.0 billion in new cost savings measures

described above, a letter of intent has been signed with the flight deck

and cabin unions with the clear commitment of saving an additional SEK

0.5 billion.

The phasing of the result effects from the SEK 7.3 billion in cost

savings, in addition to the SEK 2.2 billion in 2009, is approximately

SEK 2.2 - 2.6 billion in 2010, SEK 1.7 - 2.1 billion in 2011 and the

remaining effect in 2012. The restructuring costs for the amended Core

SAS cost savings program, including the new cost savings measures, are

expected to be approximately SEK 1 billion in total for 2010 and 2011,

the majority of which are expected to be incurred in 2010.

The macroeconomic environment has deteriorated considerably more during

2009 than anticipated by the market at the beginning of 2009 and as

estimated in the original Core SAS strategy. The airline industry has

been severely affected, resulting in a substantial decrease in the

number of passengers and passenger yields, leading to significantly

lower revenues for the airline industry. As a consequence of these

effects, the pre-tax profit for 2009 before non-recurring items for SAS

was substantially lower than anticipated when the Core SAS strategy was

launched in February 2009.

Further, restructuring costs in 2009 for Core SAS were significantly

higher than expected, primarily due to the unexpected severe decline in

air travel demand which forced SAS to ground aircraft faster than

anticipated. Lease expenses for parked aircraft, which qualify as

restructuring costs, increased further as the weak market made it more

difficult to sublease leased aircraft. In addition, more pilots than

expected accepted early retirement offers. The lower than expected

revenues also led to higher net working capital outflow due to lower

prepayments for tickets. These factors, together with lower than

expected proceeds from asset disposals, have had a significant negative

impact on the Group's cash flow and liquidity position. This will be

addressed by balance sheet strengthening initiatives.

Balance Sheet Strengthening

To secure SAS' liquidity position and thereby provide support for the

implementation of the remaining parts of Core SAS, the balance sheet is

strengthened through (i) an agreement in place to improve terms with

lending banks (representing SEK 5 billion of credit facilities), (ii) a

plan to secure refinancing of the majority of 2010 bond maturities

(approximately SEK 2 billion) and (iii) a rights issue of approximately

SEK 5 billion.

In order to improve the Group's liquidity, agreements have been reached

with the Group's lenders regarding four revolving credit facilities,

whose maturities will be extended from 2012 to 2013. The overall amounts

of the facilities will remain unchanged. These lenders have also agreed

to provide improved covenant headroom. This is subject to the completion

of the rights issue resolved upon by the Board of Directors.

Furthermore, the company is taking immediate steps to pursue a number of

initiatives to secure refinancing or extension of maturities of the

majority of 2010 bond maturities (approximately SEK 2 billion) in the

public and private debt markets in the coming months.

To further enhance the Group's liquidity position and to support the

implementation of the remaining parts of the Core SAS strategy and a

number of refinancing initiatives, the Board of Directors has resolved,

subject to approval by the Extraordinary General Meeting, to undertake

an issue of new shares with preferential rights for the Group's

shareholders. A completion of the rights issue, in which SAS intends to

raise approximately SEK 5 billion, will strengthen the Group's financial

position and is expected to provide SAS with the financial and strategic

flexibility it needs to pursue its long-term strategy and will, together

with the new initiatives under Core SAS, ensure that SAS is well

positioned for the market recovery.

Summary pro forma financial effects of the rights issue

Unaudited key Dec 31, 2009 Rights issue(1) Pro

forma

financial items Dec 31,

2009(1)

and ratios pro

forma

(MSEK)

Equity 11,389 +5,000 16,389

Adjusted net debt 19,321 -5,000 14,321

(2)

EBITDAR before 2,626 2,626

nonrecurring

items(3)

Adjusted net debt 8.5x 6.3x

/ Adjusted

EBITDAR

(excluding lease

income)(4)

1) Excluding issue costs

2) Net debt adjusted for capitalised leases at 7x (net of lease income)

3) EBITDAR of MSEK 1,008 adjusted for restructuring charges of MSEK

1,547 and other non-recurring items of MSEK 71

4) EBITDAR as defined in footnote 3 less lease income of MSEK 347

Terms of the rights issue

Shareholders will have preferential rights to subscribe for new shares

in proportion to their holdings. Subscription may also be submitted

without preferential rights. Allotment of shares subscribed for without

preferential rights will primarily be allocated to those who have

subscribed for shares with preferential rights.

The rights issue is subject to approval of an Extraordinary General

Meeting which is expected to be held on 7 April, 2010 (separate notice

to be distributed). The record date for participating in the rights

issue is expected to be 12 April, 2010. The subscription period is

expected to run from and including 15 April, 2010 to and including 29

April, 2010, or such later date as decided by the Board of Directors.

The maximum amount by which the share capital will be increased, the

maximum number of shares to be issued and the subscription price are

expected to be determined by the Board of Directors not later than 6

April, 2010. The newly issued shares will rank pari passu in all

respects with the existing ordinary shares. In order to facilitate the

rights issue, the Board of Directors has also decided to put forward

related proposals at the Extraordinary General Meeting including

amendments to the articles of association and a reduction of the share

capital and, if required in order to complete the rights issue as

planned, a bonus issue without the issuance of any new shares.

Commitments and underwriting

The Swedish Government, the Danish Government and the Norwegian

Government have separately expressed to the Board of Directors their

support for this process and stated that they will, where necessary, ask

their respective parliaments for approvals to, subject to certain

conditions, subscribe for their respective pro rata shares in the rights

issue and, at the Extraordinary General Meeting, vote in favour of all

proposals by the Board of Directors related to the rights issue. The

participation of the three states in the rights issue is subject to,

amongst other things, all three states deciding to subscribe on a pro

rata basis, refinancing of the bonds maturing in 2010, final agreement

with the flight deck and cabin unions and parliamentary approvals (where

necessary).

The Knut and Alice Wallenberg Foundation, through Foundation Asset

Management (FAM), has expressed its support for the rights issue and its

willingness to, subject to the three states subscribing to their

respective pro rata shares, refinancing of the bonds maturing in 2010

and final agreement with the flight deck and cabin unions, participate

in the rights issue on a pro rata basis and, at the Extraordinary

General Meeting, to vote in favour of all proposals by the Board of

Directors related to the rights issue.

The three states and FAM represent in total 57.6 percent of all

outstanding votes and shares in SAS.

J.P. Morgan, Nordea and SEB Enskilda, acting as Joint Global

Coordinators, Joint Lead Managers and Joint Bookrunners, DnB NOR Markets

and The Royal Bank of Scotland, acting as Joint Lead Managers and Joint

Bookrunners, and Danske Markets, acting as Co-lead Manager, have

confirmed their expectation, subject to certain conditions, to enter

into an underwriting agreement on a several basis in respect of the

remaining 42.4 percent of the shares to be issued in the rights issue.

Indicative timetable for the rights issue 2010

6 April

Subscription price and subscription ratio are decided and announced

through a press release

7 April

Extraordinary General Meeting approves the rights issue resolved by the

Board of Directors and resolves on all other proposals by the Board of

Directors related to the rights issue

8 April

First day of trading in the shares, excluding right to participate in

the rights issue

9 April

Publication of the prospectus

12 April

Record date for participation in the rights issue, i.e. shareholders

registered in the share register of SAS as of this day will receive

subscription rights for participation in the rights issue

15 April - 26 April

Trading in subscription rights

15 April - 29 April

Subscription period

5 May

Announcement of outcome

For further information, please contact

Claus Sonberg, Executive Vice President Corporate Communications, +46 8

797 1660

Sture Stølen, Head of SAS Group Investor Relations, +46 70 997 1451

SAS Group Corporate Communications, +46 8 797 2440

SAS discloses this information pursuant to the Swedish Securities Market

Act and/or the Swedish Financial Instruments Trading Act. The

information was provided for publication on February 9, 2010, at 08:00

am CET

Disclaimer

This document is not being distributed to persons in any state or

jurisdiction where the offer or sale of the rights or shares is not

permitted.

These materials are not an offer for sale of securities in the United

States. Securities may not be sold in the United States absent

registration with the United States Securities and Exchange Commission

or an exemption from registration under the U.S. Securities Act of 1933,

as amended. The issuer of the securities does not intend to register

any part of the offering in the United States or to conduct a public

offering of the Rights or the Shares in the United States.

This document is only being distributed to and is only directed at (i)

persons who are outside the United Kingdom or (ii) to investment

professionals falling within Article 19(5) of the Financial Services and

Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii)

high net worth companies, and other persons to whom it may lawfully be

communicated, falling within Article 49(2)(a) to (d) of the Order (all

such persons in (i), (ii) and (iii) above together being referred to as

"relevant persons"). The Rights and the Shares are only available to,

and any invitation, offer or agreement to subscribe, purchase or

otherwise acquire such securities will be engaged in only with, relevant

persons. Any person who is not a relevant person should not act or rely

on this document or any of its contents.

This document is an advertisement and is not a prospectus for the

purposes of Directive 2003/71/EC (such Directive, together with any

applicable implementing measures in the relevant home Member State under

such Directive, the "Prospectus Directive"). A prospectus prepared

pursuant to the Prospectus Directive will be published, which, when

published, can be obtained from the SAS Group. Investors should not

subscribe for any securities referred to in this document except on the

basis of information contained in the prospectus.

In any EEA Member State that has implemented the Prospective Directive,

this communication is only addressed to and is only directed at

qualified investors in that Member State within the meaning of the

Prospectus Directive.

------------------------------------------------------------------------

--------

[1] Cost per available seat kilometre

[2] Source: Studies conducted by the Group

[3] Source: Flightstat

[4] Source: Association of European Airlines