Scandinavian Airlines updates SkyTeam timing as it charts its path out of bankruptcy

Scandinavian Airlines, or SAS, is plotting its next steps as the airline prepares to emerge from Chapter 11 bankruptcy. Part of that is looking forward to its departure from Star Alliance, which it co-founded 25 years ago, as it moves forward with new ownership and prepares to join SkyTeam.

The airline expects the process of joining SkyTeam to begin as soon as this spring, but CEO Anko van der Werff stresses that the timeline is entirely dependent on how the rest of the bankruptcy exit process plays out.

"I think we actually only come out of Chapter 11 probably by the summer," van der Werff told TPG on the sidelines of an event hosted by the Wings Club in New York this month. At the event, he shared a broad presentation about the airline's history and plans going forward. "I think, really, you can only say probably by spring, really, what's going to happen and how fast."

SAS announced in October that it had reached a $1.2 billion financing deal as part of its bankruptcy restructuring that would see Air France-KLM take a noncontrolling 20% stake in the airline. Investment firm Castlelake will take a stake of roughly 32%, while the Danish state will hold about 26%.

The restructuring plan was approved in bankruptcy court on Tuesday, Nov. 21.

As part of the new tie-up with Air France-KLM, SAS will depart Star Alliance, leaving fellow members United Airlines and Lufthansa. It'll instead join its new minority owners in the SkyTeam alliance.

There are still numerous steps in the bankruptcy exit process, van der Werff said, including a formal plan of reorganization, confirmation hearings, approvals from the European Commission and more.

However, the work of unwinding from Star Alliance and laying the groundwork to integrate with SkyTeam can begin sooner, van der Werff said.

"Once there's a confirmation hearing, it's going to be pretty clear that this will happen," he said. "As of that moment, we will likely see Star begin to ramp down, and of course, what we will want to do is ramp SkyTeam up at the same pace or faster."

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The key to the timing, van der Werff stressed, is to minimize the impact on passengers as the complicated work of undoing and reforging alliances is carried out.

"We do not want passengers to be at the receiving end of this," he said. "All of the bookings need to be honored, and all of that."

As the airline exits bankruptcy and intertwines more with its new owners, SAS plans to build a deeper relationship with Air France-KLM and its new SkyTeam partners than simply membership in the alliance.

Among other things, van der Werff said, SAS intends to apply to be part of existing joint ventures with other airlines, including the transatlantic joint venture between Delta Air Lines, Air France-KLM and Virgin Atlantic.

"We want to be there," van der Werff said.

"Thinking ahead, we would also like to see what we can do on the Asia side, such as China Eastern, or Korean Airlines," he added.

While SAS sees potential in the Asia market, particularly with the SkyTeam membership opening doors, the transatlantic market remains the current focus.

"First and foremost, the focus will be on making sure that we get this investment agreement done," he said. "Then, of course, entering SkyTeam, and then the North Atlantic."

Although the minority stake Air France-KLM will hold in the new airline is far from a full takeover, the new tie-up nonetheless represents the latest move in a broad wave of consolidation within the European airline industry.

Most recently, Germany's Lufthansa Group took a 41% stake in ITA Airways, the Italian carrier formed from the remnants of Alitalia.

TAP Air Portugal is likely the next carrier to join a larger group: The airline was put up for sale in September by the Portuguese government. Lufthansa and International Airlines Group — which owns several carriers, including British Airways and Iberia — are seen as likely competitors. Air France-KLM is also expected to make a bid.

While consolidation is generally viewed negatively by consumers due to reduced competition, van der Werff suggested that consolidation is the only way for larger airlines to survive.

"In the 2000s in the United States, pretty much every single airline ended up in Chapter 11," he said. "From 2010 to 2020, every U.S. airline was highly profitable and very successful."

He argued that the consolidation seen in the U.S. that set the stage for 2010s success was also a boon for passengers.

"In that decade, you cannot argue that the consolidation was bad for consumers. Investments in airline products, new aircraft, Wi-Fi on board, ground products ... it's tremendous what's happened for consumers."

The European airline industry is still recovering from the pandemic, and the market remains more fragmented than in the U.S. Van der Werff suggested that the current deal between SAS and Air France-KLM and the upcoming purchase of TAP Air Portugal likely won't be the last mergers.

"Europe is still at the beginning of this," he said. "Something really does need to happen."

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