SAS — Share Issue/Capital Change 2023

Apr 6, 2023

SAS initiates process to raise equity financing, provides updated financial projections and confirms expectations for existing shareholders and creditors

SAS initiates process to raise equity financing, provides updated financial projections and confirms expectations for existing shareholders and creditors

SAS AB ("SAS" or the "Company") announces that it is taking the next step in its

comprehensive business transformation plan known as SAS FORWARD by initiating a

process to solicit equity investment in the reorganized SAS.  As part of its

chapter 11 process, SAS will today file a motion (the "Equity Solicitation

Procedures Motion") with the U.S. Bankruptcy Court for the Southern District of

New York (the "Court"), seeking approval of procedures that will govern the

Company's equity solicitation process.  The Company has previously stated that

it aims to raise at least SEK 9.5 billion of equity financing.  However, the

final amount of equity financing raised will depend upon the competitive equity

raise process along with the Company's ongoing ability to generate additional

liquidity.

Through these procedures, SAS will run a competitive and broad solicitation

process to secure the best available terms and conditions for new equity

capital. Potential investors can place bids to take a lead position or be paired

with other investors in acquiring equity interests of the reorganized SAS. SAS

will continue to operate the business and serve its customers as usual

throughout this process.

Given the substantial debt reductions or conversions anticipated (i.e.,

approximately SEK 20 billion in claims) combined with the need for substantial

new equity capital, SAS expects that there will be only modest recovery for

general unsecured creditors and little or no recovery for subordinated unsecured

creditors upon emergence from the chapter 11 process.  Further, given that

shareholders are lower in priority of payment in relation to creditors, there is

currently an expectation that there will be no or very little value for existing

shareholders in SAS AB at the end of the Company's restructuring proceedings.

SAS is also announcing updated financial projections (the "Updated

Projections"), based on a revised business plan which reflects optimized network

and route planning, improved expectations on demand and capacity, agreements

with lessors that allow for increased cost savings, and better developments in

the Company's cash position during the winter. The key changes in the Updated

Projections concern the long-term revenue and EBT forecasts, as well as the

short-term liquidity forecast.  For fiscal year 2026, revenues are now expected

to reach up to approximately SEK 58 billion, vs. SEK 49 billion previously set

forth in projections disclosed by the Company through its September 30, 2022

press release (the "Prior Projections"). Under the Company's Updated

Projections, the Company expects to produce earnings before tax ("EBT") margin

of approximately 9-10 percent in fiscal year 2026 (vs. 6-8 percent in the Prior

Projections).  In the Prior Projections, the Company had forecast the fiscal

year 2023 year-end liquidity level[[[1]]] to reach 15 percent . Under the

Updated Projections, the liquidity level is expected to significantly exceed

that liquidity level (subject to actual Company financial performance, actual

size of equity capital raise, any changes in future fleet plan or other material

capital expenditures, among other factors).  The liquidity level is expected to

remain at such higher levels throughout the Updated Projections period.

[1] Cash and cash equivalents divided by revenue (rolling 12 months).

Anko van der Werff, President and Chief Executive Officer of SAS, says:

"With the equity raise process we are initiating today, we are taking the key

next step in SAS FORWARD, our transformation plan that aims to improve our

financial strength, secure long-term competitiveness and fortify our position as

Scandinavia's leading airline.  We will commence a competitive and broad

solicitation process to secure equity capital that will help drive our airline

forward and facilitate our emergence from the chapter 11 process".

SAS' strategy and market

SAS aims to be the first choice for all Scandinavian travelers, with the

strongest network both within Scandinavia and from Scandinavia to the rest of

the world. With a population that has higher GDP per capita and travels

frequently, Scandinavia has long been one of the most stable and attractive

markets for air travel in Europe. SAS is a leader in this market with positive

brand affiliation and capacity strength.  Through an improving cost structure

and by adding new mid-size aircraft to the fleet, the Company has opportunities

to maintain its market position while also driving revenue growth and

profitability.

SAS' strategy is to meet the needs of the Scandinavian business and leisure

market with a combination of efficient service, competitive offerings, and a

leading position in sustainable air travel.  SAS aims to strengthen its market

position in the segment for customers who want a high-quality offering with a

competitive value proposition, while retaining its leadership in the premium

segment.  A restructured network is expected to result in profitable increases

in capacity over time.

Progress on the SAS FORWARD transformation plan

Since announcing the SAS FORWARD plan on February 22, 2022, SAS has made

significant progress in many areas, some of the key items of which are described

below.

State support

On June 7, 2022, the Swedish government announced its intention to support the

conversion of its debt into equity, and that it will not contribute with new

capital. On June 29, 2022, the Norwegian government also announced its intention

to, under the right circumstances, support the conversion of its term loan to

equity and that it will not contribute with new capital. On June 10, 2022, the

Danish government announced its intention to support, subject to certain

conditions, e.g., burden sharing and sufficient shareholder protections, the

conversion of its debt to equity and that it would be willing to make an

investment in the Company that would allow Denmark to (i) obtain an ownership

stake in SAS between its current ownership level of approximately 21.8 percent

and up to approximately 29.9 percent and (ii) retain certain government rights.

Labor negotiations

As previously announced, SAS reached agreements with its pilot unions on July

19, 2022 for new 5.5-year collective bargaining agreements.  SAS also reached

agreements with all of its other unions except for its cabin crews in the

following months of 2022.  On November 29, 2022 SAS reached agreements with its

Norwegian cabin crew unions.  Negotiations with the remaining cabin crew labor

unions are currently being conducted.

Lessor negotiations

On January 13, 2023, SAS announced the conclusion of lessor negotiations, an

important step in the chapter 11 process, having reached agreements with a total

of 15 lessors, representing 59 aircraft. Through amended lease agreements, SAS

has achieved annual cost savings exceeding SEK 1.0 billion in reduced aircraft

lease expenses and annual cash flow items relating to aircraft financing.

However, these savings will only be reflected in the Company's financial

results upon emergence from the chapter 11 proceedings.

Other savings

In February 2023, the Company reached a multiyear agreement renewal with

Amadeus, a key travel technology provider for SAS.  The agreement will deliver

efficiency within Distribution & IT, in line with the target set forth in the

SAS FORWARD plan, whilst keeping SAS at the forefront of technology evolutions.

Updated Projections

On September 30, 2022, SAS announced additional details on the SAS FORWARD plan

including financial projections.  In the Updated Projections announced today,

SAS expects that revenues will exceed SEK 40 billion in fiscal year 2023 and

return to pre-Covid levels in fiscal year 2024, which is one year earlier than

in the Prior Projections.  Improved long-term expectations with respect to

passenger demand and a faster capacity rebound, including more widebody

aircraft, allow higher revenue than in the Prior Projections.  Under the Updated

Projections, revenues in fiscal year 2026 are now expected to reach up to

approximately SEK 58 billion, compared to SEK 49 billion in the Prior

Projections.

Furthermore, SAS expects to reach an adjusted negative EBT [1] of approximately

SEK 4-5 billion in fiscal year 2023, given that many of the cost efficiencies of

the SAS FORWARD plan are either ramping up over fiscal year 2023, or have been

implemented but cannot be recognized in the Company's financial results until

post emergence from chapter 11, including cost savings resulting from the fleet

restructuring.  The adjusted EBT in fiscal year 2023 is unchanged in the Updated

Projections compared to the projection that SAS announced on February 24, 2023.

SAS expects to reach positive EBT in fiscal year 2024, increasing to

approximately SEK 5-6 billion in fiscal year 2026, corresponding to an EBT

margin of approximately 9-10 percent, when the SAS FORWARD plan is expected to

have been fully implemented. In the Prior Projections, the EBT figure and margin

for fiscal year 2026 were approximately SEK 3-4 billion and 6-8 percent,

respectively.  The improvement in EBT amounts and EBT margin is a result of

increased projected revenue, mainly due to the increase in assumed demand and

capacity, as well as a reduction in financing costs resulting from an assumption

that some of the Company's future fleet can be self-financed (acquired without

debt or lease financing).

In 2023, debt or debt-like items of SEK 20 billion are expected to have been

converted into equity of the reorganized Company or otherwise substantially

reduced in value to such creditors through the chapter 11 process.  After

emergence, SAS expects its net-debt to be at approximately SEK 17 billion

(majority of debt comprised of aircraft debt and lease liabilities).  Assuming

successful completion of the SAS FORWARD plan, SAS expects to attain a strong

financial position and expects to be close to net debt-free by the end of fiscal

year 2026.

Assuming a raise of SEK 9.5 billion, as modified by actual liquidity results of

the Company and its liquidity demands upon exit, SAS also expects its liquidity

level to significantly exceed the estimated 15 percent contained in the Prior

Projections. This is as a result of stronger cash generation over this past

winter due to strong sales and revenue performance.  That liquidity is expected

to remain at such higher levels throughout the Updated Projections period

(subject to actual Company financial performance, actual size of equity capital

raise, any changes in future fleet plan or other material capital expenditures,

among other factors).

The updated financial projections are premised upon a successful progression and

execution of the SAS FORWARD plan, and a demand recovery in line with

expectations as described above.  Furthermore, assessments of the updated

financial projections are based on the following unchanged foreign exchange

assumptions: an exchange rate of 10.22 SEK/USD through the end of fiscal year

2023, 9.48 SEK/USD for fiscal year 2024, and 8.75 SEK/USD for fiscal year 2025

and beyond; and the following revised fuel price assumption: an average of 914

USD/MT[2] (previously 946 USD/MT) for the remaining months of fiscal year 2023,

gradually reducing up to the end of fiscal year 2025 in which it is assumed to

remain constant at 676 USD/MT for fiscal year 2026 and beyond.  All numbers are

presented on a consolidated basis for the SAS Group.

Launch of the equity solicitation process

SAS has focused on developing a path out of chapter 11 through an exit

transaction that will maximize value for key creditors and other stakeholders.

To this end, SAS has progressed negotiations with the Official Committee of

Unsecured Creditors, and the states of Denmark and Sweden (the "States"), on the

terms of SAS' restructuring, as well as the terms of an equity solicitation

process to source the capital needed to facilitate SAS' emergence from its

chapter 11 proceedings.  Based on these negotiations, SAS will file in its

chapter 11 court proceedings a motion to approve equity solicitation procedures

(the "Equity Solicitation Procedures") that will allow SAS to test the market

for the highest or otherwise best offer from parties interested in partnering

with SAS to become a lead investor in the reorganized SAS.  Further, the Equity

Solicitation Procedures will include certain terms and conditions related to the

States' cooperation, regulatory approval processes and, in the case of the state

of Denmark, participation in the equity raise, subject to satisfaction of

certain conditions precedent for such an investment.

In the light of this and the progress SAS has made on its transformation plan,

SAS is now ready to take the next step and initiate the equity raise process.

The filing of the Equity Solicitation Procedures Motion with the Court marks

the start of this process.  The Company is doing so from a new position of

strength with significant cost saving achieved and a strong liquidity position.

The hearing on the Equity Solicitation Procedures Motion is currently scheduled

for April 19, 2023, and the process for selecting a lead investor to invest in

SAS is expected to conclude approximately 12 weeks later.

Need for exit equity financing

In order to emerge from its chapter 11 process, SAS must pay off its debtor-in

-possession loan ("DIP Loan") and related fees to Apollo Global Management, as

well as make potentially other cash distributions to unsecured creditors in

relation to their approximately SEK 20 billion in claims. The cash resources of

SAS just prior to emergence, and before accounting for successfully closing on

exit equity financing, will largely need to be applied to paying off the DIP

Loan and meeting those other obligations. Therefore, all or substantially all of

the proceeds from the equity raise will be needed to provide SAS with sufficient

liquidity to operate.

Recapitalization sources and transaction structures remain to be determined

which is expected to include sourcing capital from institutional investors,

pension funds, private equity firms and other similar large investors along with

the State of Denmark.

Recovery for creditors and shareholders

The implementation of the court-supervised process in the U.S. is likely to

entail additional legal proceedings in other jurisdictions than the U.S.  Given

the substantial debt reductions or conversions anticipated (i.e., approximately

SEK 20 billion in claims that will be compromised) combined with the need for

substantial new equity capital, SAS expects that there will be only modest

recovery for general unsecured creditors and little or no recovery for

subordinated unsecured creditors.  Further, given that shareholders are lower in

priority of payment in relation to creditors, there is currently an expectation

that there will be no or very little value for existing shareholders in SAS AB

at the end of the Company's restructuring proceedings.

Additional Information About the Chapter 11 Process and Implementation of SAS

FORWARD

On July 5, 2022, to accelerate the implementation of its comprehensive business

transformation plan SAS FORWARD, SAS announced that it had voluntarily filed for

chapter 11 in the U.S., a well-established and flexible legal framework for

restructuring businesses with operations in multiple jurisdictions. Through this

process, SAS aims to reach agreements with key stakeholders, restructure the

Company's debt obligations, reconfigure its aircraft fleet, and emerge with a

significant capital injection.

At the outset of its restructuring process, the Company's SAS FORWARD plan

envisioned raising at least SEK 9.5 billion in new equity capital as well as

reducing or converting SEK 20 billion of debt (of which a majority is on-balance

sheet debt), including state hybrid notes, commercial hybrid notes, Swiss bonds,

term loans from states, aircraft lease liabilities and maintenance contract

obligations and other executory contract obligations.  The Company's actual

capital raise is dependent upon the factors previously listed.

SAS targets to complete its court-supervised process in the U.S. in the latter

part of the second half of 2023.

Additional information about the Company's voluntary chapter 11 process is

available on the Company's dedicated restructuring

website, https://sasgroup.net/transformation. Court filings and other documents

related to the chapter 11 process in the U.S. are available on a separate

website administered by SAS' claims agent, Kroll Restructuring Administration

LLC, at https://cases.ra.kroll.com/SAS. Information is also available by calling

(844) 242-7491 (U.S./Canada) or +1 (347) 338-6450 (International), as well as by

email at SASInfo@ra.kroll.com.

Advisors

Weil, Gotshal & Manges LLP is serving as global legal counsel, Norton Rose

Fulbright is serving as special aircraft finance counsel, and Mannheimer

Swartling Advokatbyrå AB is serving as Swedish legal counsel to SAS.  Seabury

Securities LLC and Skandinaviska Enskilda Banken AB are serving as investment

bankers, Seabury is also serving as restructuring advisor. FTI Consulting serves

as financial advisor.

For further information, please contact:

SAS Press office, +46 8 797 29 44

Investor Relations, +46 70 997 7070

This is information that SAS AB is obliged to make public pursuant to the EU

Market Abuse Regulation. The information was submitted for publication, through

the agency of Erno Hildén, at 03:15 a.m. CEST on April 6, 2023.

SAS, Scandinavia's leading airline, with main hubs in Copenhagen, Oslo and

Stockholm, is flying to destinations in Europe, USA and Asia. Spurred by a

Scandinavian heritage and sustainable values, SAS aims to be the global leader

in sustainable aviation.  We will reduce total carbon emissions by 25 percent by

2025, by using more sustainable aviation fuel and our modern fleet with fuel

-efficient aircraft. In addition to flight operations, SAS offers ground

handling services, technical maintenance and air cargo services.  SAS is a

founder member of the Star AllianceT, and together with its partner airlines

offers a wide network worldwide. Learn more at https://www.sasgroup.net

ADDITIONAL INFORMATION

The press release does not constitute an offer to sell or issue, or the

solicitation of an offer to buy or acquire, or subscribe for, shares or any

other financial instruments in SAS.

This press release contains forward-looking statements that reflect SAS' current

view of future events as well as financial and operational development. These

statements may include, without limitation, any statements preceded by, followed

by or including words such as "intend", "assess", "expect", "may", "plan",

"estimate" and other expressions involving indications or predictions regarding

future development or trends and other words and terms of similar meaning or the

negative thereof. These forward-looking statements have been prepared for

illustrative purposes only, are not based on historical facts, are not

guarantees of future performance, reflect SAS' beliefs and expectations, and are

subject to known and unknown risks, uncertainties and assumptions and other

factors that could cause actual events and performance to differ materially from

any expected future events or performance expressed or implied by such forward

-looking statements. As a result of these risks, uncertainties, assumptions and

other factors, you should not place undue reliance on these forward-looking

statements as a prediction of actual future events or otherwise. The information

contained in this press release is subject to change without notice and, except

as required by applicable law, SAS does not assume any responsibility or

obligation to update publicly or review any of the forward-looking statements

contained in it, whether as a result of new information, future events or

otherwise.

[1] Earnings before tax, excluding capital gains and capital losses, and

excluding gains or losses related to the emergence of the chapter 11 process.

[2] Metric tons.