Air France-KLM taking SAS stake in $1.2 billion recapitalization

SAS AB chose Air France-KLM and private equity firm Castlelake LP to anchor a $1.18 billion investment in the bankrupt Scandinavian flag-carrier, ending a five-month chase for new capital.

Air France-KLM will invest up to $144.5 million for as much as 19.9% of SAS, according to a statement Tuesday. The deal would further the post-Covid consolidation of Europe’s aviation industry around the three major carrier groups, including Deutsche Lufthansa AG and IAG SA. 

As part of the deal, SAS will exit the Star Alliance, and eventually join Air France’s SkyTeam.

The reorganization under US Chapter 11 bankruptcy rules will wipe out existing shareholders of SAS, including stakes held by the governments of Sweden and Denmark. Still, the 77-year-old airline will remain standing after seeking protection from creditors. It filed for bankruptcy in July 2022, after the Covid-19 pandemic disrupted travel, fuel prices rose and its pilots went on strike. 

SAS has said it aims to emerge from the court process around year-end, after raising new equity and cleansing its books of some 20 billion Swedish kronor ($1.8 billion). As part of the process, the Stockholm-based company targeted raising at least 9.5 billion kronor in new capital. 

The recapitalization process started earlier this year has faced delays. In June, SAS extended the time line for bids from potential investors by four weeks. Early last month, it pushed the deadline back an additional week, until Sept. 25.

SAS was founded in 1946 through the merger of three airlines from Sweden, Norway and Denmark, and in the ensuing decades forged an unrivaled role connecting the region with the rest of the world. 

Prior to the equity raise, the governments of Denmark and Sweden each owned 21.8% of SAS, but only Denmark was open to adding to its holding. Sweden had indicated it would accept a conversion of debt it was owed into equity, but wouldn’t participate in a new capital raise. Norway’s government also said it wouldn’t contribute any new equity after selling its last stake in the company in 2018.

US-based Apollo Global Management Inc. provided the company with a $700 million debtor-in-possession term loan as part of the Chapter 11 process. Earlier this year, media in Denmark reported that SAS would probably delist its shares since Apollo hoped to take a 70% stake in the airline, with the Danish state taking the remaining 30%.