Crash Pushes Spanair Closer To The Brink

August 21, 2008

The deaths of 153 (now 154) people on board a Spanair flight at Madrid Airport on Wednesday massively increase the financial pressure on the already-troubled SAS-owned airline, analysts said on Thursday.

SAS’s shares fell more than 4 percent on Thursday, taking losses since the crash to over 10 percent.

The stock has fallen as Spain’s number 2 airline seeks to pull back from losses of USD$81 million in the first half.

“This is something that couldn’t have come at a worse time for Spanair,” said Douglas McNeill, transport analyst at Blue Oar broker in London.

Falling sales, as apprehensive travelers steer clear of the airline, could now be added to the carrier’s financial woes. Just last week SAS said it will cut Spanair’s fleet by a quarter and lay off over 1,000 staff — a third of its work force.

“All airline crashes have a short-term impact on revenues before later recovering. But in Spanair’s case it could affect the company’s viability,” an analyst in Spain said.

American carriers Pan Am and TWA both eventually went out of business after air disasters in 1988 and 1996 respectively.

Bermuda-based insurance firm ACE is expected to pay claims related to flight JK5022 but additional operational costs if the company ultimately decides to ground more of its fleet, coupled with charges from planned lay-offs and a potential decline in revenues may push the company out of business.

“If a fall in demand is added to staff conflicts over lay-offs, the company could be at risk of going bankrupt,” the analyst said.

Directors from SAS and Spanair told reporters on Thursday they would not comment on the future of the Spanish carrier following the crash, or on any impact on its finances or reputation.

To keep Spanair alive, analysts say SAS could shrink it even further than the 25 percent cut in capacity it announced last week. If that did not work, SAS could sell the planes Spanair owns rather than rents, although overcapacity in the sector has weakened the market for used aircraft.

Scandinavia’s SAS had been trying to sell loss-making Spanair for nearly a year before temporarily pulling the sale in June due to a lack of buying interest.

“(The crash) won’t be the end of Spanair, but it is the end of any possible sale,” said an investment banker.

While it has a cash pile of SEK8 billion Swedish kroner (USD$1.26 billion), SAS is also struggling with its own strategic issues, with analysts saying it will be difficult for the company to make a profit in 2009 and 2010 given persistently high fuel prices.

“SAS has had a mixed track record these last few years, and the oil price rise is causing it major problems,” Blue Oar’s McNeill said.

“Like many other carriers, it must be thinking carefully about whether its future is best served by its current ownership structure.”

Lufthansa has been cited as a possible buyer or partner for SAS due to its geographic reach and following the recent wave of consolidation in the European airline sector.

(Reuters, retaken from http://clearhorizons.wordpress.com)

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