Major airline learns its Chapter 11 bankruptcy fate
According to The Street, The COVID-19 pandemic struck a severe blow to the airline industry, with its first major hit being the near-total disappearance of air travel for over a year. International travel was especially hard hit, and airlines faced the challenge of operating with drastically reduced passenger numbers. While flights were few, operational costs didn’t stop. Airlines still had to pay their employees, maintain their fleet, and manage other essential expenses, all while revenue plummeted. This led many airlines to accumulate high-interest debt while deferring non-essential costs.
The Ongoing Effects of Post-Pandemic Travel Patterns
As the pandemic’s impact began to subside, the airline industry faced a second hit: the shift in travel behavior. Many businesses realized that travel they once deemed essential could often be replaced with virtual meetings. Business travel, a significant revenue stream—particularly from those who paid for First or Business Class—did not return to pre-pandemic levels. Airlines that were already struggling financially found themselves missing one of their most lucrative customer bases. While travel hasn’t completely gone away, many in-person trips have been replaced by Zoom meetings, and companies have significantly reduced participation in trade shows, meetings, and events.
This ongoing shift has disproportionately affected some airlines, pushing one major global carrier, Scandinavian Airlines (SAS), into bankruptcy. The company has recently received news regarding its Chapter 11 filing.
SAS and the Chapter 11 Bankruptcy Process
SAS, though lesser-known to many Americans, is a significant player in the global aviation industry. The airline provides a crucial service in Scandinavian infrastructure, connecting regional airports with major hubs and flying passengers to over 1,300 destinations worldwide through its membership in the Star Alliance.
SAS filed for Chapter 11 bankruptcy in an American court in July 2022. The company explained that Chapter 11 is a legal process, often used by international airlines based outside of the U.S., to restructure and reduce costs. SAS emphasized that despite the bankruptcy filing, its operations and flight schedules would continue as normal.
“SAS’ operations and flight schedule are unaffected by the Chapter 11 filing, and SAS will continue to serve its customers as normal. Importantly, we expect to have sufficient liquidity to support our business and meet our obligations going forward,” the airline stated. The company secured $700 million in Debtor-in-Possession (DIP) financing to fund its operations throughout the restructuring process.
SAS Receives Court Approval for Restructuring
After a long bankruptcy process, SAS received approval from U.S. Bankruptcy Judge Michael Wiles of the New York Bankruptcy Court to proceed with its restructuring plan. The plan includes $1.2 billion in new funding from a consortium consisting of Castlelake, L.P., Air France-KLM, Lind Invest ApS, and the Danish government.
Junior creditors will receive a mix of credit and equity valued at $350 million, though the full extent of what the company originally owed has not been disclosed. However, the restructuring will result in the cancellation of existing SAS equity, with no payouts to current shareholders.
SAS CEO Anko van der Werff commented on the approval, stating, “The investment agreement that was approved by the court today is a key milestone in our SAS Forward plan, and it shows that our new investors believe in SAS and our potential to remain at the forefront of the airline industry for years to come.”
With court approval in hand, SAS is poised to continue its operations while emerging from bankruptcy as a leaner, financially stable airline ready to compete on the global stage.
