SAS To Cut Costs, Sell Units

June 13, 2007

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Scandinavian airline SAS unveiled plans on Wednesday to lift profits by cutting costs and spinning off units such as Spanish airline Spanair.

The airline, half-owned by the governments of Sweden, Denmark and Norway, said it aimed to raise annual pretax profits to about SEK4 billion Swedish kronor (USD$564 million) and cut costs by SEK2.8 billion (USD$395 million) by 2011.

SAS, which has said it needs to boost earnings to cope with investment in renewing its passenger jets in the coming years, reported a pretax profit of SEK292 million (USD$41.2 million) in 2006.

"Through the new direction, SAS will create over a four-year period the preconditions for growth in all markets and increase the number of passengers by a total of 20 percent," the firm said in a statement.

The firm declined to comment on how many employees would be affected by the planned restructuring.

"It is impossible to say now if there will be any staff cuts," SAS spokesman Bertil Ternert said, adding the first priority of the firm was to determine which units would remain part of the group.

The carrier, which has been hard hit by fierce competition from low-cost carriers and higher fuel costs in recent years, said it would sell off units that did not fit with its core business -- including Spanair, bmi [BMID.UL] and Air Greenland.

SAS owns 95 percent of Spanair, Spain's second biggest carrier with 3,570 employees. SAS owns 20 percent of British operator bmi and 37.5 percent in Air Greenland.

It said it would also evaluate the future "structure and roles" of operations including SAS Ground Services (SGS), SAS Technical Services (STS) and its cargo unit during the autumn.

The units being eyed have about 10,000 employees in total. "The purpose is to determine which parts of its operations SAS should continue to operate on its own and which parts should be operated by other players," it said.

The airline, which has had hundreds of flights grounded in recent months due to strikes at its Danish and Swedish units, said it would establish a new model for cooperation with unions.

"We have to abandon the strike culture that has long existed at SAS," it said. "We have to stand together behind a new customer-oriented business culture based on the needs, requirements and expectations of customers."

The Salaried Employees' Union (HTF), whose members include Swedish cabin crew and employees at the ground service unit said it was too soon to comment on the firm's plans.

The Swedish government has said it wants to sell its 21.4 percent stake in the airline, but that it will not include it in its current round of sell-offs.

(Reuters)