(Bloomberg) -- SAS AB filed for Chapter 11 bankruptcy protection a day after its pilots went on strike, grounding a majority of the Scandinavian airline's flights and worsening Europe's travel chaos.
The carrier canceled 236 flights on Tuesday, or 78% of planned departures, according to tracking website FlightAware.com. Travelers reported widespread disruptions at airports in Sweden, Denmark and Norway, where SAS has hubs.
The company has said the pilots' walkout threatens its existence. The flight cancellations have turned the Nordic region into a new chokepoint in Europe's snarled travel networks, following cuts to many airlines' schedules and growing labor unrest.
The Chapter 11 filing will help tackle a crippling debt burden, SAS said. Though other European airlines have seen surging demand this summer, the Scandinavian carrier has had a slower-than-expected recovery, and it's been struggling with structural problems that predated the Covid crisis.
The Stockholm-based company is in “well advanced” discussions with a number of lenders to secure additional debtor-in-possession financing for up to $700 million, according to a statement on Tuesday. Shares fell as much as 13.2% in Stockholm to a record low of 0.536 kronor per share.
The legal move comes as the Nordic region's biggest carrier remains in talks with its creditors to convert 20 billion Swedish kronor ($1.9 billion) of outstanding debt and hybrid notes into shares while seeking to raise additional equity for about $1 billion.
SAS, which already restructured its debt in 2020, has been burdened by an uncompetitive cost structure that has prevented it from reaching its full potential, chairman Carsten Dilling said in a conference call on Tuesday. Its recovery from the Covid-19 slump has been dented by personnel costs, high debt and strikes.
Read more: SAS Shareholders Approve $1.6 Billion Recapitalization Plan
SAS and certain of its subsidiaries filed voluntary petitions in the U.S. Bankruptcy Court for the Southern District of New York. The airline said it expects to complete the court-supervised process within nine to 12 months.
Pilot Strike
The decision to start court proceedings was accelerated by the pilots' strike, which went into effect immediately and left some travelers stranded. The airline said it would issue refunds or vouchers to affected passengers.
SAS chose the US over other jurisdictions for the Chapter 11 filing because it allows operations to continue while the company is restructuring, and the fleet stays under control of the company, according to the CEO.
Bankruptcy processes in the US are open to foreign companies that have assets or operations in the country.
“The chapter 11 process gives us legal tools to accelerate our transformation, while being able to continue to operate the business as usual,” Chief Executive Officer Anko van der Werff said no the call.
In the filing, the carrier listed assets worth between $10 billion and $50 billion, and liabilities between $1 billion and $10 billion. The debt pile includes 6 billion kronor of hybrid notes bought by the governments of Denmark and Sweden during the last bailout in 2020, as well as commercial hybrid notes, lease liabilities, Swiss-franc bonds and various term loans.
Sweden, Denmark
The company has been struggling to get the backing of its largest shareholders for the restructuring plan.
While Denmark said it's open to adding to its holding, Sweden's government flagged it will accept a conversion of debt it is owed into equity, but won't participate in a new capital raise. The two governments have a 21.8% stake each in SAS.
The Norwegian government, one of the creditors and a former shareholder of the company, also said won't participate in a share sale.
Wallenberg Investments, the vehicle of one of Sweden's wealthiest families and a minority shareholder, said it “fully supports” the decision to file for bankruptcy protection and pointed out how the airline had been burdened with too high costs for decades.
The case is SAS AB, 22-10925, U.S. Bankruptcy Court, Southern District of New York.
Read More: Europe's Airline Turmoil Spreads as Scandinavia Faces Strike
(Updates with details from conference call with management from fifth paragraph.)
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