SAS AB (OTC:SASDQ) Q4 2022 Earnings Conference Call November 29, 2022 4:00 AM ET
Company Participants
Louise Bergstrom – VP, IR
Anko Van der Werff – President & CEO
Erno Hilden – EVP & CFO
Conference Call Participants
Jacob Pedersen – Sydbank
Operator
Welcome to the SAS Year-End Report of Q4 2022. [Operator Instructions]. And afterwards, there will be a question-and-answer session. I will now hand you over to Louise Bergstrom. Please go ahead.
Louise Bergstrom
Good morning, ladies and gentlemen. My name is Louise Bergstrom, and I’m Vice President of Investor Relations here at SAS. Today, I would like to welcome you to Scandinavian Airlines’ Fourth Quarter of Fiscal Year 2022 presentation, which will be presented to you by our President and CEO, Mr. Anko Van der Werff, together with our Chief Financial Officer, Mr. Erno Hilden.
Before we start, I would like to highlight that the information being given to you in this presentation today is a summary and should not be considered as advice or recommendation to investors or potential investors in relation to purchasing or selling securities.
Forward-looking statements presented to you today by Anko or Erno do not guarantee future results or development and the actual outcome could differ materially from the forward-looking statements. For further information, please read our financial and annual reports online.
And with that, I hand over to you, Anko, to start the presentation. The floor is yours.
Anko Van der Werff
Excellent. Thank you very much, Louise. Ladies and gentlemen, good morning, and thank you for joining us today. Indeed, my name is Anko Van der Werff, I’m the President and CEO of Scandinavian Airlines.
After the presentation, as we always do, we will have a Q&A session where the floor will be yours. Now you can follow our presentation online. And we will try, as always, to guide you through the pages that we’re talking about. So let’s jump in straight, please.
On Slide 1, I will start with some highlights from the quarter. And after that, Erno will take you through the details of financials before I come back and wrap up by talking about what lies ahead of us and the next steps in the SAS FORWARD plan.
Both revenue and costs increased during the quarter, but a positive trend is that the gap between the two is decreasing as revenues increased more than our cost did. We are still at a negative EBT. And as we have previously communicated to the market, we do not expect to reach profitability within the next year despite our comprehensive cost-out program.
As per demand, last quarter we saw demand picking up properly after the pandemic, and then it remained on the same higher levels throughout the fourth quarter. Several of the highlights from the quarter are related to progression or the progress and our comprehensive business transformation plan is set forward. And I will talk about these milestones in more depth later in the presentation.
But at a glance, they summarize the following way. We secured the DIP financing, a debtor-in-possession financing from Apollo Global Management and made a first draw of $350 million in September, which of course, is essential for our ability to carry out the transformation plan.
Secondly, we have renegotiated agreements with the majority of our lessors and continued negotiations with the remaining lessors. We have also seen improved efficiency in our operations, especially positive to see the improved aircraft utilization with reduced downtime for the aircraft. As part of our efforts to be the leader in sustainable aviation, we have signed letters of support with Heart Aerospace, an exciting project aimed at developing electric aircraft for commercial use. And those aircraft will be an excellent option for our shorter domestic routes.
So for instance, in Norway or Sweden domestic, right, there is — the topography makes it, of course, difficult to travel by car or train. And as part of leveraging our SAS brand, which is also featuring heavily in our FORWARD Plan, in September, we launched our new communication concept “Journeys that matter”, which seem to be appreciated by the market very much.
And finally, we can conclude that we ended the quarter with a strengthened cash position. It’s largely due to the fact that we drew the first half of the DIP financing, but you’ll see further on in the presentation that the positive effect is not solely derived from the DIP.
Briefly touching on what we have ahead of us. Of course, we have our main focus on continued progress with SAS FORWARDs. We also continue to work to improve our operational performance. You’ll see that the delta in our performance figures is very positive this quarter. It’s also largely due to the fact that last quarter, we were heavily impacted by the pilot strike, of course.
We still have a way to go before we are at level or at a level that we want to be operationally. But as always, we really focus on improving the lives of our customers. So that is why that operational performance and the improvements that we have seen over the past few weeks, the stability that we have in our operations is so crucial for us because it is to them.
Furthermore, I can not stress the importance of the DIP financing enough in these uncertain times with high inflation, increasing interest rates and of course, high prices on fuel and other important inputs, continued war in the Ukraine, liquidity is really of growing importance and therefore, also additionally, we are now starting planning for ramping up our capacity into next summer. And so we have to take the right steps, of course, to get there.
If we flip to Slide 2, please. Then looking at the passenger loads, we saw demand, as I already commented on a continued decent level. And that means that with the exception of the strike in July, we have now seen two quarters with demand on — yes, on decent levels. September and October, specifically, right August, September, October, almost 2 million passengers a month each, rebounding also very, very quickly after the pilot strike. So good performance on — in that sense.
Looking ahead, we still don’t see any immediate signs of increasingly strained macroeconomic impacts on our booking levels. Obviously, the war in Ukraine is still impacting the Russian aerospace closure, right, as all of you know. And together with remaining COVID-19 restrictions certainly in China, it does impact our ability to fly to Asia. And that impact is, yes, it’s quite negative.
I’ve mentioned it before. We flew about 30 frequencies a week to Asia, and now it’s only 1. In short, it’s been a fairly good quarter demand-wise. But of course, we are preparing for potential changes if households continue to see worsening economic conditions going forward.
Slide 3. Here, we compare our passenger growth to the 2 previous years. Very much, I think, a repetition of moves. But if you look at the levels from the months in 2019 pre-pandemic, it becomes apparent that demand is yet to fully bounce back certainly on a full year scale, right?
It’s there for potentially higher fleet periods, but certainly not yet year-round. The number of departures and regularity are impacted positively compared to last quarter, where, again, the strike hit those figures severely. We’ve had a slight decrease in our cabin factor, but that is on the back of significant increases in departures. So I would call that the cabin factor is pretty much flat.
Overall, improving, again, operational performance and, of course, the driving that efficiency in operations is really a key element in our transformation plan.
With that, handing over to Erno. Slide 4, please, and then I’ll be back after that.
Erno Hilden
Thank you, Anko, and a very good morning to all of you also on my behalf. I will cover some key areas from the financial perspective for Q4. And as this also concludes our financial year 2022, also some brief comments about the full year figures as well.
And as Anko mentioned, he will come back with an update on the progression of SAS FORWARD later on. As we can see on the chart on the left-hand side here, our operating margin has been improving since last quarter, which was impaired by the strike in the peak of the summer traffic season. However, despite the strong growth we are showing year-on-year, our production volumes are still significantly below the pre-pandemic levels, those being 2019 numbers.
And as a general comment, it is still quite difficult to come up with really relevant comparisons for the performance because Q4 ’21 was still significantly impacted by the Omicron. And then again, the previous quarter for us, the Q3, it’s not seasonally identical to Q4.
But in any case, I will just use the regular comparisons you are used to hear, but this is something to keep in mind when analyzing our numbers. For Q4 of this year, our revenues increased by a whopping 84.8% from Q4 in ’21. And as I mentioned, that was still heavily impacted by the pandemic.
I will share some further insights in the revenue development shortly. Our operating costs have also naturally increased with production volumes and the cost increase has, in fact, been amplified because of the strong headwinds from increased jet fuel prices and the strengthening of the U.S. dollar, as we all know.
On EBIT terms on operating levels, we were close to breaking even for Q4. But obviously, after the financial items, our EBIT earnings before taxes was still negative with SEK 1.7 billion of loss. For the full financial year, our revenues increased by 128% from previous year and reached SEK 31.8 billion, which really underlines how strong the traffic ramp-up during financial year ’22 for us has been.
Our operating expenses increased by 80.7% and then reached SEK 35.2 billion, which means that our operating income or EBIT was still negative with NOK 3.3 billion of loss. But even after the negative impact from the strike in July, it was still better than what we achieved in financial year 2021. The increased jet fuel price had a negative impact of almost SEK 1.9 billion, and that combined with the increased volumes, our total cost for jet fuel increased by 215% to NOK 8.5 billion for 2022.
The strengthening of the dollar impacted our performance not only through operating costs, such as fuel, aircraft leasing and aircraft maintenance, but also through the currency revaluation of our lease liabilities with a massive SEK 2.9 billion negative impact for financial year ’22. However, and as pointed out before, this revaluation is not an immediate cash item and the effective net result to us will be determined later during the remaining tenures of the respective lease agreements.
But after all these developments, our earnings before taxes for financial year ’22 was heavily at loss with SEK 7.8 billion against SEK 6.5 billion in the years before.
And moving on to Slide 5, please. Here, we have the chart on our revenue development, which has been quite strong, mostly driven by the increased production, but obviously also by the strong demand. During Q4, our total traffic in ASKs or available seat kilometers, increased by 52.1%, and our passenger load factor increased by 18.1 percentage points to 77.1%.
In Q4, our currency adjusted revenue increased by almost SEK 4.6 billion as the currency adjusted passenger revenue increased by 84%. Increased production and higher load factors both contributed to the increase with close to equal weight. And our traffic and operating revenues complemented the growth on top line. In scheduled traffic, our unit revenue development was similarly strong, mostly driven by the improved load factors. In passenger yields, we had a slight positive change overall with 0.8% nominal increase, but adjusted for currency, our passenger yield declined by 4.3% year-on-year.
And the passenger unit revenue, or PASK, grew nominally by 32.7% from Q4 ’21 and by 26% adjusted for currency. Then when comparing the full financial year ’22 to previous year, our total production in ASKs grew by 99.2%, and our passenger load factor increased by an impressive 22.8 percentage points, up to 70.7%. And year-on-year, the yield development in scheduled traffic was modest with a slight negative change, minus 2.9% on nominal basis and adjusted for currency, minus 6.9%. But as I mentioned, due to big improvements in load factors, the PASK development was remarkably good with 44.7% growth on nominal terms and adjusted for currency with 38.7% increase.
Overall, our RASK increased by 28.1% on nominal terms and adjusted for currency, once again, of plus 22.9%. And all the mentioned items for the full financial year include the SEK 1.2 billion revenue reduction because of the strike impact that happened during the previous quarter, Q3. I’m moving on to the next slide, please. And here, we have our earnings before tax or EBT development in the quarter. Last year, our loss was SEK 900 million, driven by very low production volumes, but at the same time, supported by some temporary relief against the impact from the pandemic, like furloughs for staff. And adjusted for currency, the respective number for comparison was a loss of SEK 2.1 billion.
The EBT for Q4 this year was minus SEK 1.7 billion, so a decrease of some SEK 400 million from Q4 previous year on currency-adjusted basis. Our operating costs are to a great extent volume-driven. So the substantial growth in operating volumes naturally also increases our costs substantially compared to previous year and also against Q3. And compared to Q4 in ’21, our fuel cost increased by SEK 1.8 billion or 175%, driven by both volume, which represents some SEK 1.1 billion of total increase and the price decrease, which added SEK 800 million more to the total fuel cost.
And as has been the case throughout the financial year ’22, also at the end of Q4, we currently remain unhedged for fuel. And also, as I mentioned before, on Slide 4, for the full financial year ’22, our EBT was at loss with SEK 7.8 billion. And the strong headwinds from the strengthening dollar and increased jet fuel prices have burdened our results all through the year. And for the full year, the volume effect from jet fuel was an increase of SEK 4.3 billion, whereas the price impact was an additional SEK 1.9 billion, so quite substantial numbers.
Then moving on to the next slide, Slide 7. We are showing the developments with our liquidity position during Q4. And as Anko mentioned, at the end of Q4, our liquidity position was at very solid SEK 8.7 billion after the first draw after the financing happened during the quarter. And we have also been able to generate positive operating cash flow during the year with Q4 delivering SEK 420 million and for the full year with SEK 1.8 billion.
And at the same time, we have been able to successfully continue implementing our fleet renewal by taking delivery and successfully funding also further Airbus 320neo aircraft, which bring us cloud leading performance in both fuel efficiency and sustainability. We are already one of the biggest operators for the type in the region. We do expect our typical seasonality pattern to continue with the seasonal decrease in the UTR or unearned traffic revenue against the winter season before the pickup towards ramping up for the next summer season begins.
And we are targeting the second draw of the DIP financing during the first quarter of financial year 2023, as Anko mentioned, to maintain strong liquidity position through the winter season and throughout the Chapter 11 process.
Then moving on to Slide 8. Here, we have on the left-hand side our current debt maturity profile. Let’s mention that the majority of the financial year ’23 forecasted outflow is, in fact, the repayment of the DIP loan. Our plan, as is customary in any Chapter 11 process, is to refinance the DIP funding in the equity raise. So hence, no respective outflow on net basis should be expected.
And as we have communicated before, our target is to raise no less than SEK 9.5 billion of new common equity to complement the targeted SEK 20 billion debt-to-equity conversion. And just to be clear, the reasoning for using the term common equity here is that perpetual bonds or hybrids are classified as equity under IFRS, but we are aiming to increase common equity. So not to fund us with further hybrid bonds, but proper equity.
And the DIP loan itself can also be extended in line with the terms and conditions of the contract, which gives us some additional flexibility should any of that we required as we move ahead. And also, I’d like to point out that included in the maturity profile here for the year ’24 until ’27, we are showing the term loans from the States, i.e., Norway, Denmark and Sweden. And as we have communicated before, we have received positive confirmations from Sweden, Denmark and Norway for their willingness to engage in debt equity — debt-to-equity conversions for their respective loans to the company, obviously subject to making material progress with the SAS FORWARD program.
On the right-hand side of the slide, we have the scheduled aircraft deliveries for the future periods. And actually this year, this financial year, we are expecting to take delivery of 21 additional aircraft, the amount consisting of 15 further Airbus 320neos and 6 regional Embraer 195 aircraft for SAS Link. And finally, on the hedging front, we currently, as I mentioned, have no hedges in place for fuel. But for foreign currencies, our policy is to hedge between 40% to 80%. And at the end of the quarter, we are hedged 40% of our anticipated U.S. dollar cash flow deficit for the next 12-month period.
And in terms for the Norwegian kroner, which is our largest surplus currency, we have a hedging position of some 40% for the next 12 months.
And from here, I will now hand back over to Anko to take us through the progression with SAS FORWARD.
Anko Van der Werff
Yes. Thanks, Erno. So let’s briefly go through once again before we have, of course, your questions or the Q&A session in a minute. SAS FORWARD, launched at the end of February this year. Overall objective of the plan is to adapt SAS to the new market conditions and of course, take us back to competitiveness and profitability. Part of the plan, an essential part is to strengthen our financial position and to achieve a sustainable cost structure.
The three key elements of the plan are illustrated on the slide here. I think you know them by now. The first pillar, the reduced cost structure. The aim to decrease the total annual cost by SEK 7.5 billion. We have identified the cost-out initiatives amounting to that SEK 7.5 billion now, and we are underway with not only validating them, but of course, some implementation. Some of the initiatives are implemented faster and some will only be realized once we see the further ramp up. But we are confident that we will get there.
The second pillar is the restructuring of our balance sheet. We have seen and I think have communicated very clearly that we see the need to deleverage and strengthen our equity. All-in-all, we’re looking at converting SEK 20 billion of debt into equity. And as you know, we have already received the internal support from Denmark, Norway and Sweden to do so by converting their hybrids and unsecured loans into equity conditional to all other stakeholders participating in SAS FORWARD.
The third pillar, and of course, a major priority going forward is the new equity raise, at least SEK 9.5 billion. How and when, it’s too early to state right now, but the new equity will be required in order to give the company the long-term financial stability needed to become profitable. And given a substantial debt-to-equity conversions anticipated combined with the need for substantial new equity capital, the company currently expects that the recovery, if any, to unsecured creditors including holders of commercial hybrid notes and Swiss bonds will result in significant impairments and that the resulting dilution to shareholders will likely be substantially greater than 95%.
Slide 11. As mentioned, we have seen some important progress at the plan during the quarter. In Q3, we filed for Chapter 11 in the U.S. to accelerate the SAS FORWARD process. The Chapter 11 process allows us to continue operating our business with our own management and Board of Directors while giving our asset protection and partial financial relief, we are doing our utmost to come out of the process stronger on the other side.
And during the fourth quarter, we have successfully entered into debt financing credit agreements for $700 million with funds managed by Apollo Global Management. This bridge financing will allow us to be financially sound throughout the Chapter 11 process, which is expected to be concluded during the second half of 2023.
First half of that debt, the $350 million was drawn in September. Now again, I want to be very specific here, and also right have the language absolutely correct to what we have shared this morning. We currently target therefore to complete our core supervised process in the United States during the second half of 2023, the implementation of which is likely to entail additional legal proceedings in other jurisdictions than the United States. And therefore, as a result, there is no assurance that there will be any recovery for the shareholders of SAS AB. And SAS expects that this operations will be unaffected by such legal proceedings and that it will continue to serve customers as normal.
On the productivity side, an effect from increased capacity and ramp-up following the pandemic aircraft utilization and block hours have increased with 32% over the year. On fleet, there are still some ongoing discussions, but during the quarter, we’re very pleased that we have come to agreement with 13 lessors regarding 46 aircraft regarding the lessors participation in the overall burden sharing.
Simultaneously, some aircraft have been rejected and very important that we see external stakeholders contributing to our transformation plan. Switching to sustainability and ever present and all the more important parts of our transformation journey. By 2025, we will reduce our CO2 emissions by at least 25% compared with 2005. During the quarter, we signed an important letter of support with Heart Aerospace for the option to add their new electric aircraft, the ES-30 to the SAS regional aircraft fleet. And this has the potential of being a significant step on SAS journey, sustainability journey, I should say, enabling zero-emission flights on routes within Scandinavia at first.
The last point on this slide refers to our brand, which is one of our core strengths. The pandemic has brought about changes in demand as well as travel patterns. And in order to stay relevant in the overall travel market, we launched a new communication concept in September. The campaign highlights the importance of traveling represents SAS’ first brand campaign since 2020 and it’s called “Journeys that matter”. The new communication concept speaks to this new wider target group. It emphasizes that traveling gives us new perspectives, experiences, lifelong memories. It’s firmly put again the customer at the center. The revised and updated visual identity adds new warm and personal elements, while really retaining our characteristic core. Now the broader target group will also be reflected in our commercial offering going forward.
For example, we have taken the first steps in unbundling our offer to capture ancillary revenues. I want to be very clear here that SAS is, of course, and will very much focus on the business travel and the connectivity of Scandinavia from within, but also Scandinavia with and from the world very much for that business community. And this is only an additional element, right, the focus on ancillaries and broadening that scope very much broader than what we were.
Now on Slide 12, the next steps in our plan. We will continue to discuss, of course, with labor groups. We are currently happy that we have signed a Norwegian cabin crew agreement last night. We will continue, of course, with groups and we will aim to reach, of course, agreements that are on par with the market and contribute to securing a future for SAS.
We also continue to discuss with the remaining lessors. I highlighted that a slide ago to complete the fleet restructuring, which will, of course, help us to reach our future targets. On the recap side, we still need to restructure the balance sheet. And so far, we have confirmed half of the SEK 20 billion of debt and hybrid bonds that need to be converted to equity. And as I mentioned, when the timing is right, and we expect that roughly in, call it, 2 months, we will pursue raising at least SEK 9.5 billion in equity.
With that, Slide 13. Moving to the last slide. We’ll keep it short so that we have sufficient time for questions. Last time, we got some remarks that there were still questions outstanding. So we will shorten it and hand over to you in a second.
Let me just recap what our target state looks like, right? In the end, the objective, of course, is that the SAS FORWARD plan will make us more attractive to our customers, providing those new benefits. More relevant, more flights also again from regional airports, regional basis. We can constantly review and assess our customer experience and how we can improve it. I’m very happy to say that the customer appreciation in September and October has literally been at an historic high. Very good to see the performance from all our teams.
So the customer focus being front and center also for the new SAS. We’ve had various events over the last weeks with our EuroBonus members, very successful dialogue meetings in now Copenhagen and Stockholm. We had a family event for EuroBonus customers in Stockholm as well. And soon, we will do all of that in Oslo.
Our digital capabilities, of course, key to the whole transformation process, making our internal processes more efficient, but also improving our customer experience, we are underway with launching our new and very cool app. You hopefully will be able to see that very soon. It’s launched for Android and is launching literally within, hopefully, a day or 2 days in iOS, a major milestone because in that app, really, our customer interface will provide us with a whole new tool set of adding elements to our customer offering.
As I said, increased personalization of the offering part of unbundling to better match the demand is also part of the strategy. What routes we offer and when you will see us come out later in — well, it’s actually next week that we will launch our summer schedule in which there will be about 15 new routes. One of them already we have communicated last week. A very good example, for instance, Copenhagen JFK.
We already fly to Newark, that, of course, is our main base, but now having, as we say, both sides of the river, the markets of JFK and Newark are equally large. So through JFK, we tap also into that new market.
Sustainability on track to meet our target, minus 25% by 2025. Heart Aerospace, we’ve discussed as well. All the work we’re doing with Airbus on hydrogen makes us really proud to be part of, hopefully, the big transformation also on sustainability. So to summarize, we’re executing on our plan. We have a clear road map. We’re seeing important progress. And together with our partners and stakeholders, we are building the future SAS.
Thank you for your attention so far. With that, Louise, operator, let’s open up for questions.
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question comes from the line of of Deutsche Bank.
Unidentified Analyst
My question relates to the timing of the Chapter 11 process. I understood that you were targeting the first half of the year. Can you please explain what has caused the delay?
Anko Van der Werff
Yes. First of all, I think we’ve always been clear that it could take up to 12 months. And therefore, we started in July. So technically, right, that already brings us to the second half of the calendar year 2023.
So in that sense, right, it was already second half. But we’re also equally clear, when you look at, for instance, the internal deadlines that we set for some of the negotiations, one of them being cabin crew, we had set those for October. It is pretty much tomorrow, the 1st of December. So yes, there is some delay. I think that really is a matter of a few months. We don’t expect it to be a full half year, but that’s at least why we’re now saying right, to be much more on the safer side and a bit broader second half of 2023.
Unidentified Analyst
And could you comment on the progress of your negotiations with lessors?
Anko Van der Werff
Yes, absolutely. I think we’re, I would say, 80%, 90% ready, already signed. And as you have seen, very serious and very solid progress, all the press releases that already we have signed are sent out, I should say, sorry, leading up to SEK 1 billion in savings. So very good progress.
We have always been very clear there was a pre-COVID market, and there’s a post-COVID market. And of course, what we have now been able to achieve is that we’re also on the price points of the post-COVID market.
And secondly, mainly due to Asia, other factors as well, but mainly Asia really the need for some of the widebodies were simply not there. So also there, we’ve been able to reject some aircraft. And yes, very happy to see the support in the end from the lessor group. It’s, of course, vital that we have those good relationships. And yes, good to see the progress there.
Operator
[Operator Instructions]. And there are no further telephone questions at this time. Please go ahead, speakers.
Louise Bergstrom
I actually have received a recent question. So the first question, how do you see the competition from the low-cost airlines evolve? And how are they taking over the market share? Are they? And how will you — what will you do about that?
Anko Van der Werff
Yes. It’s very clear. One of the reasons for why we always said that we needed our transformation process is that we want to be a healthy company that can compete. We know that there is a changed market out there.
And again, if you look at this year, I’m not sure who asked the question. But so I can’t really address that person. But the one who ask the question, look, if you look at the results that we had for the year or for the quarter for that matter, it is clear that we’re still loss-making and that we need to complete our transformation process in order to also, right, we can get some of that positions back.
We do want to make sure that we can compete. At the moment, we’re not there yet. But with all the good elements coming out of SAS FORWARD, the DIP that we’ve signed, the pilot agreement, and the Norway cabin crew agreement that’s been signed, and of course, all those lessor agreements, we will and we are very much on our way to be a healthy airline. And then we can grow again. But that is, of course, the intention and make sure that we’re relevant for our customers.
Louise Bergstrom
Thank you, Anko. And actually, for a follow-up on that question, . He’s got a follow-up and he’s asking if the share is worth investing in.
Anko Van der Werff
Yes. I think what we’ve shared this morning, very clearly also in the report, once again, is that there is no assurance that there will be any recovery for the shareholders of SAS AB. We have, I think, been very clear all along in this process that we would always need one or more court-supervised processes to really get to, if you like, the other side of the restructuring, right, of the transformation plan. So we’re very clear again this morning. We will — we’re very serious about this transformation. We’re very serious about what we’re doing. And so we have said once again, I’m going to repeat myself, but that SAS is currently targeting to complete its court-supervised process in the United States during the second half of 2023, and the implementation of which is likely to entail additional legal proceedings in other jurisdictions in the United States.
As a result, right, and to come back to the question from , there is no assurance that there will be any recovery for the shareholders of SAS AB.
Operator
And we have another question on the telephone lines. A question from the line of Jacob Pedersen of Sydbank.
Jacob Pedersen
Just had some technical issues here. Yes, I have a couple of questions. If we start out with your guidance, is there any currency effects built into your current year guidance?
Erno Hilden
The guidance is based on the current forward-looking rates. So there’s no update on that.
Jacob Pedersen
Okay. Then maybe you can give us some — you shared a bit of light on how we should model your costs moving forward. You’re doing a lot of efficiencies and cost reductions at the moment. When will they be more visible? Because I understand, of course, that we have a couple of quarters in front of us now, which are seasonally low. And we should expect a low profitability and low earnings in that part of the year.
But looking into the second half of the current financial year, if your cost reductions begin to take effect and passenger numbers improve even more, how do you see that transition?
Erno Hilden
Well, as of today, we are not sharing any further details on the exact timing of the cost savings. But what I can say is that, obviously, the team is working really hard. And in such forward, we have some 250 savings initiatives. And each of those is being worked on.
And obviously, our intention is to be able to move ahead as quickly as possible. But at the same time, something I mentioned before or during the call, many of our savings initiatives are volume driven as is typical with airlines. And also that means that the full value to be realized will require us to really reach full production volumes, I mean, reaching pre-pandemic levels of production. And that is unfortunately not something we see happening quite yet.
And then the financial guidance we have given for financial year ’23 was and still stands that we expect our EBT to hand out at between SEK 4 billion and SEK 5 billion negative. So that really is the valid guidance for us.
Jacob Pedersen
Yes. And just to stay on this topic, we had a new agreement reached with the pilots with cost efficiencies and cost reductions. Does that need to be approved in the U.S. courts before this becomes visible in your numbers?
Anko Van der Werff
No, we’re implementing that, Jacob. As you recall, and I think we touched upon it in the last earnings call, but there were two parts to the pilot agreement. There is the CBA. There, we have really no reason to believe that the court actually wants to, yes, I mean, to make changes or interfere is a big word, right? But I can’t think of anything else at the moment, right? I mean, I don’t want to be light, but you understand where I’m heading, right?
There was the other agreement, which was the support agreement, right, the RSA, and that really was scrutinized by the U.S. court. So that I think we have solved. We’re trying to put that back to the judge and make sure that we hopefully get approval on that. But the CBA itself and the changes they are being implemented, and I don’t think that there will be any expected changes to that.
Jacob Pedersen
Okay. The cabin crew agreement this morning, with Norwegian cabin crew, is that a step in the right direction when it comes to SAS FORWARD? We saw the pilot agreement with cost reductions and efficiency improvements. It doesn’t seem as if the same part of the improvement has been reached with the Norwegian cabin crew. What has changed in your view is?
Anko Van der Werff
Yes. No, I get the question, Jacob. Look, I think you have to really see that in a broader context. First of all, these unions made rather than Norwegian cabin crew unions did make a significant contribution already back in 2020, and that is now also solidified in this new agreement. So there is already that contribution towards SAS FORWARD.
I think when you look at Norway and the way that structure works like the 3.7%, that is practically a nationwide agreement. There is, of course, a centralized unions as well. We also have to, on the whole, understand that we’re looking for hundreds of cabin crew also in Norway, where we want to grow back again and where we do want to also open up those bases for Link.
So I think all-in-all, really, we are content with that deal and we have to make sure that, of course, we also find further savings now in — as part of SAS FORWARD on the whole, again, right?
But look, with the contributions dating back already from earlier in the pandemic, these were clearly unions that already then took the responsibility. So I think this is the right outcome and certainly also for our customers because this will provide stability and a peace of mind for Christmas.
Jacob Pedersen
Okay. Last question from my side. Regarding the debt conversion, you’ve made a lot of progress in bringing down the leasing costs, yearly leasing costs. But we haven’t heard anything about you reducing leasing obligations in the same wording. Is reduction of leasing debt a part of this? I know that you have a huge currency headwind in this respect. But yes.
Erno Hilden
Yes. So the relief will come from two ways for that. Obviously, renegotiating the pricing for the existing fleet will reduce these liabilities and at the same time, rejecting excess aircraft from the fleet will also bring relief. So we are working on both.
And as we have said in the quarterly announcement, we have rejected 5 aircraft altogether by end of Q4. And as Anko pointed out, we are still working on concluding lessor negotiations.
As you mentioned, obviously, the dollar has been a strong or long lever in driving up the lease liability on our books. But ultimately, the same works the other way around. So the lease liability and lease costs are dollar denominated. So any reductions we get from the balance sheet in decreased lease liability will actually be worth more in kroners now that the dollar is so strong.
Operator
And we have no further questions on the telephone lines at this time.
Louise Bergstrom
I have a further question from . He’s asking if we can give more details on equity raising process and how does the timeline look like for that process?
Anko Van der Werff
I can — I’ll start there and see if anyone’s weighing. Henrik, thank you for your question. Look, I think, again, we are step-by-step, right? Here is the first step.
We, of course, need to make sure that we have clarity on the second row of the DIP. That is something that where we have been very open, we wanted already to have clarity by October. I mentioned that in the earlier question that was asked about the timing of Chapter 11. So there is some delay. We are very focused on that.
I think when we conclude that we, of course, need to build all of the elements for future business, the plan of re-org as it’s called in the Chapter 11 process, and you would be at the earliest, probably able to start the equity process in, call it, two months, right, the end of — towards the end of January, I think, would be the earliest.
We have said earlier that, again, we may start that before the end of this year, but with that delay that we’ve touched upon this morning, it’s only then logical that also that process has kicked down the road a bit further. That will not be months as far as we’re concerned the delay, but indeed, it may be that 1 month, and that takes you to the end of January.
Erno Hilden
Yes, not much to add to that. But obviously, important to understand that we’re not sitting idle waiting for that to happen, but rather making preparations every day to be in a position to move ahead as quickly as possible.
Louise Bergstrom
Thank you. Then we actually have a question which is fairly similar to one we had earlier on. He is asking, Sabino is asking if — what further loss or gain can be seen after recapitalization has been done. So more or less, the same question, is the share valuable to be investing in?
Anko Van der Werff
Yes, I’m going to repeat what I said this morning. Look and yes, broken record in that sense, right? But we’ve been very clear. We’ve been very clear, I think, throughout the process. We have been very clear already, I think, since April or May, when we launched also very clearly to the external market, what implications would be of an in court-supervised process.
And again, this morning, we reiterate that, that stands, right? We’ve been very clear. And now also in the report this morning that there is really no assurance that there will be any recovery for the shareholders of SAS AB.
Louise Bergstrom
Thank you.
Anko Van der Werff
If those are the questions, then thank you very much, and we will see you and hear from you, of course, over the course of the next quarter. If not, then in the next earnings call in three months. Thank you very much.
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