© Reuters. FILE PHOTO: A Scandinavian Airlines (SAS) plane is refuelled at Oslo Gardermoen airport, Norway, November 7, 2019. REUTERS/Lefteris Karagiannopoulos
By Jacob Gronholt-Pedersen and Nikolaj Skydsgaard
COPENHAGEN (Reuters) – Swedish loss-making airline SAS is fighting for survival, the latest carrier to hit financial straits due to hefty debts, stiff competition and soaring costs, even as the travel industry recovers from the pandemic.
SAS has said a restructuring plan announced in February depends on it raising 9.5 billion Swedish crowns ($946 million)in cash and converting 20 billion crowns of debt to equity.
Many governments across the world helped shore up their national carriers during the pandemic. But Sweden and Denmark, which both have 21.8% stakes in SAS, are taking very different approaches to the Scandinavian brand.
Denmark has said it is willing to increase its ownership and write off debt, but Sweden has refused to inject more money.
WHY DOES SAS MATTER SO MUCH TO DENMARK?
SAS AB, formally known as Scandinavian Airlines System Denmark – Norway – Sweden, is headquartered in Stockholm, but it uses Copenhagen Airport, the largest in Scandinavia, as its main hub.
Denmark’s Finance Minister Nicolai Wammen has said SAS is important for the Danish economy and ensuring good travel connections from the Nordic country to the rest of Europe as well as long-distance flights to other continents.
SAS directly employs almost 7,000 people, equally shared between Denmark, Sweden and Norway. Prior to the COVID-19 pandemic, the company underpinned 20,000 jobs in the Scandinavian region, 6,800 of those in Denmark, according to a 2019 report by Copenhagen Economics commissioned by SAS.
SAS accounted for almost a third of direct and indirect flights to Denmark, according to the report. It also accounted for 82% of transfer air traffic at Copenhagen airport in 2017.
To Danes, SAS has traditionally been linked to a sense of pride and even a collective sense of ownership as it evolved to become a leading premium carrier in the decades following its creation in 1946.
WHAT HAS GONE WRONG?
At its height in the 1980s, SAS was named the world’s best airline by an industry group. But with the emergence of low-cost rivals such as Ryanair things began to change.
The company has been in nearly constant financial trouble since the turn of the century, and last year lost 6.5 billion Swedish crowns ($638 million), with revenue just a third of pre-pandemic levels.
On consumer review site Trustpilot, SAS is rated 1.5 out of five stars, just above Ryanair’s 1.4.
Adding to SAS’ trouble, some 1,000 SAS pilots in Denmark, Norway and Sweden plan to go on strike on June 29 over disagreements over wages and cost-cutting plans.
WHAT DOES DENMARK WANT?
Denmark’s parliament agreed this month to write off some of SAS’ debt and convert some more into equity, as well as to inject new cash. That could increase Copenhagen’s stake in the airline to up to 30%.
But the government has made it a condition of the cash injection that SAS gets private investors to participate too.
IS THIS A PROBLEM?
While the Danish government has promised to stay out of day-to-day business, it wants to protect its interests.
Denmark wants “influence over the elements in SAS that are central to maintaining SAS’ strong foothold in Denmark and contribution to Denmark’s international accessibility,” the finance ministry said this month.
That may deter large investors and consortia that might have been interested in making sweeping changes at SAS, according to Sydbank analyst Jacob Pedersen.
WHAT IS SWEDEN DOING?
Sweden, which has already injected more than 8 billion Swedish crowns into SAS over recent decades, has taken a harder line on new financing.
Stockholm said this month it would not provide new cash to SAS, though it approved the debt-for-equity plan.
If the airline does raise new equity, this will reduce Sweden’s stake. The country has said it wants to exit SAS completely in the long term.
HOW ABOUT NORWAY?
Neighbouring Norway’s government sold its remaining 10% stake in SAS in 2018, arguing there was no need for the state to own airline stocks.
Still, it is a major creditor with 1.5 billion Norwegian crowns ($153 million) in loans made during the pandemic.
On Tuesday, Oslo said it would support SAS’ debt-to-equity plan, under certain conditions, but did not plan to remain a long-term stakeholder.
($1 = 10.0434 Swedish crowns)
($1 = 9.7801 Norwegian crowns)
Morgan Stanley: bear market rally to continue
One of Wall Street’s best-known bears, Michael Wilson, thinks the S&P 500 will rise another 7% before turning down, so the bear market rally will continue for now, writes Market Watch.
After the Dow Jones, S&P 500 and Nasdaq Composite joined their strongest weekly gains since at least May last Friday, Wilson, who is chief strategist and head of U.S. equity markets at Morgan Stanley (NYSE:MS), told clients that there could be another 5% to 7% before the downward trajectory of U.S. stocks resumes during the latest bear market recovery.
Wilson has held a bearish view of the stock market for about 2 years and correctly predicted a sell-off this year.
Wilson explained in a research note sent out to clients on Monday that a pullback in the 38-50% drop in the stock market this year “would not seem like something unnatural, not consistent with the previous bear market rally.”
While growth concerns have triggered a sell-off in commodities and lowered inflation expectations, the fact that the U.S. economy is already slowing and heading toward recession means that any market rally is likely to be short-lived, and U.S. stocks are likely to eventually fall.
Wilson mentioned in the note that the bear market is not over yet, although it may appear otherwise in the next few weeks as the market takes the rate cut as a sign that the Fed can still manage a “soft landing” and prevent a meaningful revision to earnings forecasts.
U.S. stocks rose last week as investors now hope the slowing economy and falling commodity prices may inspire the Fed to raise interest rates less sharply. Federal funds futures, a derivative used by investors to bet on the pace of the Fed’s monetary policy changes, estimate with a high probability that the Fed will be forced to start cutting interest rates again as soon as next summer.
They also consider the lower peak in the federal funds rate: it will peak around 3.5% at the end of 2022 instead of 3.75% just a couple of weeks ago. Wilson also pointed out the drop in Treasury yields: the 10-year Treasury bond yield went from 3.230% to a low of 3.07% on Friday before rebonding again on Monday.
Wilson expects the S&P 500 index to fall to around 3,400 points if the U.S. Federal Reserve manages to get a “soft landing” for the economy — which Fed Chairman Jerome Powell said last week would be “a very difficult thing to do.”
Wilson expects that if the U.S. economy plunges into recession, the S&P 500 index will fall to around 3,000 points. In any case, Wilson believes that U.S. stocks are still highly valued because the risk premium — that is, the measure of compensation that investors receive for the extra risk of owning stocks instead of bonds — remains about 300 basis points higher than the 10-year Treasury bond yield, which is considered a “risk-free rate.”
Easing chip shortages to help Volkswagen in H2 – CEO
© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York City, U.S., April 13, 2022. REUTERS/Brendan McDermid/File Photo
BERLIN (Reuters) – Volkswagen (ETR:VOWG_p) sees a strong second half of 2022 and expects progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs, the carmaker’s CEO said on Tuesday.
“We are earning more than ever,” Chief Executive Herbert Diess said at a works meeting, adding Volkswagen is ramping up electric vehicle volumes in its biggest markets in Germany and China thanks to easing semiconductor shortages.
This should allow the carmaker to narrow the Volkswagen-Tesla gap this year and meet its goal of becoming market leader by 2025 if it seizes the moment while the U.S. electric car maker burns cash on large investments, the CEO said.
“Elon (Musk) has to ramp up two highly complex factories in Austin and Gruenheide at the same time – as well as expand production in Shanghai. That’s going to take strength out of him,” Diess said.
Reliance Chairman Mukesh Ambani steps down as director of telecom arm
© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas
BENGALURU (Reuters) – Reliance Industries Chairman Mukesh Ambani has stepped down as director of Reliance Jio Infocomm Ltd, the conglomerate’s telecom arm said on Tuesday.
Reliance Jio said https://refini.tv/3Nrs773 it has appointed Mukesh’s son and non-executive director Akash Ambani as the chairman of its board. Akash has been involved with the telecom unit since its launch in late 2016, where he started as a director.
India’s telecoms sector had been upended after the entry of Jio, which triggered a price war that forced some rivals out of the market and turned profits into losses.
Jio, which started out offering mobile teleservices, has been aggressively investing in services like internet broadband and forging ties with handset makers to launch low-cost smartphones and providing 5G services.
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