SAS AB

STO:SAS

Earnings Call Transcript

[Operator]

Good day, and thank you for standing by. Welcome to SAS Interim Report First Quarter 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to [ Klaus Landelius ] at SAS. Please go ahead.

[Unknown Executive]

Good morning. My name is [ Klaus Landelius ], and I'm part of the Investor Relations team here at SAS. Today, I would like to welcome you to our presentation of the first quarter fiscal year 2023. It will be presented to you by President and CEO, Mr. Anko Van der Werff; and by Chief Financial Officer, Erno Hilden.

Before we start, I would like to highlight that the information being given to you in this presentation today is a summary and should not be considered as advised or recommendation to investors or potential investors in relation to purchasing or selling securities. Forward-looking statements presented to you today by Anko and Erno do not guarantee future results or developments as the actual outcome could differ materially from the forward-looking statements. For further information, please read our financial reports online available on our website.

And with that, I will hand over to you, Anko. Please go ahead.

[Anko Van der Werff, executive]

Thank you. Thanks very much, Klaus. And ladies and gentlemen, good morning. Thank you for joining us today. My name is Anko Van der Werff and I am the President and CEO of SAS Scandinavian Airlines. Now Klaus already mentioned this, but after the presentation, as usual, we will have a Q&A session where we hand over to you, floor is yours. For now, you can follow our presentation online, and we will try to guide you through the pages that we're talking about.

So let's jump straight in on Slide 2, please. I will start with some highlights from the quarter. And after that, Erno will take you through the details of the financials before I come back and wrap up by talking about what lies ahead of us as -- and the next steps in SAS FORWARD.

All right, summarizing the quarter. We see a continued strong recovery in demand. Passenger volumes up almost 50% year-on-year and our flown load factor on the extra capacity that we put in is also back to pre-pandemic levels. Our revenue was up 42% year-on-year for the quarter and our yield is up as well. Remaining, of course, negative EBT of SEK 2.4 billion, which is a small improvement from the same period of last year.

We continue ramping up our capacity. And during the quarter, we've added more frequent departures from Copenhagen to Shanghai, and the 2 new routes, 1 from Gothenburg to New York, 1 from Aalborg to New York are on sale, and we will start those in April. We have already inaugurated a long-awaited route from Copenhagen to John F. Kennedy Airport in New York currently with 5 weekly flights and then ramping up to daily flights in the summer season, the first time since the 1980s that were back at JFK. We continue to prepare for what we expect to be a healthy summer season in 2023 with an expected increase in demand, and therefore, of course, our capacity to match that. During the quarter, we announced that we will open 20 new routes for the summer of 2023, and that means we'll have a total of more than 5,000 weekly flights to over 100 destinations this summer.

Sustainability, as you know, at SAS always at the forefront and therefore, making our passengers part of it. Starting this spring, travelers buying Go Smart or Plus Pro will be able to purchase tickets with 50% of sustainable aviation fuel, biofuel, so to lower the CO2 emissions of their SAS trips. And this is really 1 initiative from SAS across all the initiatives that we're putting in the market. As all of you know, SAS being at the forefront of sustainable aviation and working very hard to cut our emissions.

We've also made steady progress with our transformation plan, SAS FORWARD and our Chapter 11 process during the quarter. We concluded our aircraft lessor negotiations, having reached 15 -- or having reached agreements with 15 lessors, representing close to 60 aircraft. And through these agreements, we expect to achieve the targeted annual cost savings of at least SEK 1 billion, in, of course, reduce the aircraft lease expenses and then annual cash flow items related to aircraft financing.

Another important milestone was the approval from the U.S. courts for the 5.5-year collective bargain agreements with the Scandinavia's pilot unions, which were negotiated, call it, half a year ago. We also reached a new collective bargain agreement with the labor unions in Norway and both agreements, of course, necessary to ensure the continued progress of the SAS FORWARD plan. At the end of the quarter, half of the quarter ended we reached a multiyear agreement renewal with Amadeus, 1 of our key travel technology providers, and that agreement will deliver the efficiency within distribution and IT, in line with our targets of with SAS FORWARD plan, whilst keeping SAS at the forefront of technology evolution. So good news on the long-term agreement with Amadeus.

Now we reiterate our financial projections for the fiscal year 2023 as we go through our restructuring process and expect revenue to reach approximately SEK 40 billion and EBT to come in at approximately SEK 4 billion to SEK 5 billion loss. We are currently reviewing our long-term projections for the fiscal year '24, '25 '26, and I will talk more about those later on in the presentation.

Please -- Flip to Slide 3, please, then in winter season. As all of you know, Q1 is typically weaker right just the normal seasonality. What was good to see is that passenger demand has continued its healthy trend and the passenger volume increased with 48% compared to the first quarter of last year. Economic uncertainties, clearly, a headline, increasing interest rates and cost inflation, yes, could still affect travel industry going forward, of course. But the overall underlying demand for travel has remained healthy throughout the first quarter, and as we have said also, we continue to prepare for a busy summer season in 2023 with an expected increased demand and therefore, our capacity is well going up. I've mentioned that we will open 20 new routes and once again, 5,000 flights to over 100 destinations this year.

Flipping to Slide 4 before handing over to Erno. We continue to increase the number of departures during this quarter and the load factor was back at pre-pandemic level. Overall, improving our operational performance and efficiency remains, of course, the key element in our transformation plan. We have that journey ahead of us, but expect our ramping up efforts combined with the strong trend in passenger demand to get us there.

And with that, Erno will take over from Slide 5.

[Erno Hilden, executive]

Thank you, Anko, and good morning also on my behalf. I will cover some key areas and highlights from the financials for Q1, The first quarter of the financial year. And Anko will then come back again with an update on the progression and the next steps for SAS FORWARD, our transformation plan. And also, he's going to share some comments on the outlook going forward.

But let's start with Slide #6. As we can see here on this chart, the first quarter of the financial year is seasonally a lot weaker than the other quarters. On production volumes, Q1 brought a significant growth year-on-year with the total capacity increasing by some 18% from Q1 '22. But important to note is that compare to Q4 last year, our total capacity actually was down by almost 22% due to just our regular seasonality impact. I will share some further insights into our main revenue and cost developments in the following slides.

In Q1, despite our strong revenue performance, we were not able to reach similar financial performance to previous quarters due to lower production volumes and some severe headwinds with fuel price and some other cost categories. During the quarter, our total revenue increased by a very healthy almost SEK 2.4 billion or 42%. However, at the same time, our fuel costs increased by more than SEK 1.3 billion alone or almost 120%, driven by volume, jet fuel price and the currency impact.

As Anko mentioned, we are preparing for further traffic ramp-up towards the summer season and that, to us, includes training our crews of which many have and are rejoining the company after being laid off during the pandemic. That to us means that our crew productivity is not yet reaching the productivity levels and efficiencies that we expect to see in the coming periods with the efficiency gains from the new CBAs to be fully with us. And also worth pointing out, although it's not unusual to have challenging winter conditions this time of year in Scandinavia. For us, during Q1, the conditions have been extremely challenging, especially in December where we did not meet our punctuality targets. And for that reason, we have had an elevated cost of traffic disturbances during the period.

Our operating income or EBT for Q1 was a negative SEK 2.6 billion and income before tax or EBT stands at minus SEK 2.4 billion. Needless to say that we are not satisfied with the results as such, but they are not far from our expectations from the period. And also worth pointing out that adjusted for the items I just described earlier, our underlying performance is actually better than what these numbers are showing. And also important to point out that we are fully on track and are making steady progress with delivering the targeted cost savings under SAS FORWARD, our transformation plan.

I will walk you through some main drivers and developments in the following slides. So let's jump on to the next one with our revenue bridge for the period. So Slide #7. As we have mentioned, our revenue development during the quarter was strong, and this applies to most categories. The traffic in Q1 '22, so the comparison period was already recovering from the pandemic, which is visible in our capacity comparison where we have proportionately somewhat less growth year-on-year than has been the case through previous financial year.

In ASKs, our total capacity for the period increased by 18%, naturally, together with the strong demand driving more revenues for us. Looking deeper into the scheduled traffic capacity development, we can see that we were growing proportionately most in intercontinental traffic where capacity increased by more than 36% in ASKs and the demand in RPKs by whopping 82%. In Europe, intra-Scandinavia traffic and then domestic traffic, the capacity growth was at some 10% and 9.5%, respectively. The RPK growth in these sectors was at 32% and 31%, signaling a very strong demand in our markets.

The biggest contribution to revenue growth came from the improving passenger load factor, or PLF, which recovered, as Anko mentioned, back to pre-pandemic levels and reached 69.3% for the period. That is an increase of more than 13 percentage points, and that corresponds to SEK 1.1 billion of additional revenue which is actually more than half of the total currency adjusted revenue growth of SEK 2.1 billion for the period. Our passenger yields developed very favorably with nominal growth of 12.4% and some 7% adjusted for currency in scheduled traffic. The passenger unit revenue or PASK increased nominally by almost 40% and by 32.5% adjusted for currency.

During Q1, we witnessed some softening in cargo yields, which, together with negative cargo load factor development led to a currency adjusted decline of SEK 133 million in cargo revenues. And in other traffic revenue, we were also down by some SEK 170 million from last year's Q1, once again, currency adjusted. But it is worth pointing out that this is mostly due to having an unusually high level of unused tickets and vouchers recognized as revenue in the previous year, driven by the pandemic still.

The overall development with our ancillary revenues was strong also for the first quarter of this financial year and the combined effect from improving load factors and yield led to an overall growth of total unit revenue or RASK for scheduled traffic of nominally almost 22% and up by 15.6% adjusted for currency. The positive currency impact for Q1 in revenue was some SEK 300 million, but unfortunately, the total impact for operating income was negative with the currency impact on operating costs being more than double the amount as with the revenues.

Overall, we are satisfied with the revenue development for Q1. But as the still modest passenger load factor indicates, we still have some further headroom for improvement to cope with the seasonality impact in the winter traffic season.

And moving over to the next slide, please. On Slide #8, we have the earnings before tax or EBT developments in first quarter. Last year, our loss was at SEK 2.6 billion driven by still relatively low production volumes and demand, but also the still significantly lower jet fuel price compared to Q1 this year. Adjusted for currency the corresponding EBIT number for comparison stands at SEK 1.1 billion negative highlighting the big impact, but primarily the U.S. dollar rate has on our bottom line through the impact in revenues, operating costs and also the revaluation of the U.S. dollar-denominated lease liability that we have on our balance sheet. The EBT for Q1 this year was at minus SEK 2.4 billion, so a slight improvement from Q1 previous year.

And let's walk through the main drivers behind the change. As I mentioned before, the increase in jet fuel cost has been the biggest individual challenge to us during the quarter. And despite the slight decline from the highest levels during financial year '22, the average price for the quarter still remained at historically very high level. And for us, that meant that our biggest single cost line increased by almost 120%, almost SEK 1.4 billion and reaching SEK 2.5 billion for the period. The volume impact for that was some SEK 390 million and the impact from the increasing jet fuel price at SEK 530 million, adding to the cost. Also worth noting that we have booked some SEK 160 million more year-on-year for the effects of the emission rights, which are also shown in our fuel costs. And also at the end of Q1, as through previous financial year, we remain unhedged for fuel.

The capacity growth naturally also increased our variable production costs which increased by some SEK 700 million year-on-year. Our currency adjusted personnel costs increased a total of SEK 211 million year-on-year, mostly due to rehiring personnel or the traffic ramp-up, which I mentioned before. The increase is shown on several cost categories on this particular slide. We are also showing some items that are nonrecurring by nature in this chart. Under admin services, we have included the operating costs from the Chapter 11 process totaling to approximately SEK 500 million of advisory and legal fees. We have also changed our in-flight catering provider in Scandinavia. And because of that, we have some additional start-up costs that are only expected to affect the launch of the operation. The net financial items were up by SEK 363 million for Q1, including the costs for the DIP loan that we have with us as interest and fees.

Then moving over to the next slide, Slide #9. Here, we have the developments with our liquidity position during the first quarter of the year. At the end of Q1, our liquidity position was at very seasonally solid SEK 5.3 billion. Our operating cash flow for the period was negative with SEK 1.7 billion compared to a slight negative SEK 114 million the year before. After the negative operating result, we had positive development with our working capital driven by the strong increase of unearned transportation revenue or UTR, indicating the continuing solid booking trend for future periods.

Also worth pointing out that for the first quarter, we still had substantial outflows from the summer '22 customer claims, which partially offset the liquidity gains from the increased UTR. But important to point out that this claim backlog has now been cleared at the end of Q1. For Q1, we didn't have material outflow for our investing activities despite continuing our fleet renewal program.

And during the quarter, we took delivery of 2 more Airbus 320neo aircraft, which bring us class-leading performance in fuel efficiency and sustainability. And as mentioned before, we are already one of the biggest operators for the type in the region. Both these aircraft deliveries were fully funded by competitive sale and leaseback contracts. And as a net impact, we had no material outflow from investing activities for the first quarter of the year.

For financing activities, we had a negative outflow of SEK 1.7 billion, consisting mostly of repayments of borrowings and amortization of lease liabilities. We also made payments for call options on 3 JOLCO financed Boeing 737 aircraft with very favorable terms and significantly below the market value of these aircraft. These aircraft will be leased out to another operator in due course.

And also on fleet, as we announced in January, we have successfully concluded the lessor negotiations under Chapter 11 bringing us annual cost savings of at least SEK 1 billion in aircraft lease expenses and also the respective annual cash flows. The amended lease agreements are subject to approval by the court and to the plan of reorganization in the Chapter 11 process being confirmed and becoming effective. However, we are already able to use the reduced lease rates in our payments so the cash flow benefits from this is already with us. We are targeting the second draw of the DIP financing during the second quarter of financial year to complement our expected positive seasonal UTR development, leading to increased liquidity towards the summer traffic season.

Then jumping on to the next slide, #10. On the left-hand side, we have our current debt maturity profile. And the majority of this year's forecasted outflow is the repayment of the DIP loan I mentioned. Our plan, as is customary in Chapter 11 process is to refinance the funding in the equity raise process. And as we have communicated before, our target is to raise no less than SEK 9.5 billion of new common equity to complement the targeted SEK 20 billion debt-to-equity conversion to strengthen our balance sheet.

Also worth pointing out that as a contingency, the DIP loan itself can also be extended in line with the terms and conditions of the current contract. But on this chart, the first tranche is shown to mature this year without any extensions. Also included in this maturity profile for years '24 until '27, we are showing the term loans from states, Norway, Denmark and Sweden. And as we have communicated before, we have received confirmations from all the states for their willingness to engage in debt-to-equity conversions for their respective loans to the company subject to making material progress with the SAS FORWARD transformation program.

On the right-hand side of the slide, we have the scheduled aircraft deliveries for the future periods. This year, we are expecting to take delivery of additional 18 aircraft consisting of 13 more A320neos and 5 additional Embraer 195 regional aircraft, and those are [indiscernible] linked.

On the hedging front, as I mentioned, we are currently having no hedges for fuel. But for foreign currencies, we are following our hedging policy. And that according to that, we are to hedge between 40% and 80% of our total exposure. And at the end of the quarter, we have hedged 40% of our anticipated U.S. dollar cash flow deficit for the next 12 months. And in terms of the Norwegian kroner, which is our largest surplus currency, we are similarly hedged to 40% for the next 12 months.

And I now hand over back to Anko to take you through the progression with SAS FORWARD.

[Anko Van der Werff, executive]

Thank you very much. And with that, let's go to Slide 12, please. Now it's pretty much a summary of our transformation plan SAS FORWARD, we have launched, call it, a year ago. First, of course, as the ad of course restructuring process and then overall throughout the summer came in court. The overall objective of the plan is, of course, still the same, and it is to adapt SAS to the new market conditions and take us back to competitiveness and profitability. An essential part of the plan is to strengthen our financial position and to achieve a sustainable cost structure.

The 3 key elements of the plan and the progress are illustrated on the slide here. The first pillar is the reduced cost structure. As many of you are aware by now, the aim is to decrease the total cost by SEK 7.5 billion. We have identified those cost-out initiatives amounting to SEK 7.5 billion, and we are making progress in validating them.

The second pillar and a major priority going forward, is the -- sorry, is the -- sorry, remove that. The second pillar is the restructuring of our balance sheet, but the need to deleverage and strengthen our equity. All in all, we're looking at converting SEK 20 billion of debt into equity. And as you know, we have already received the intended support from Denmark, Norway and Sweden to do so by converting their hybrids and unsecured loans into equity conditional to all other stakeholders participating in SAS FORWARD.

And then the third pillar is the major priority. Of course, going forward, we aim to raise an equity of SEK 9.5 billion new equity required to give the company the long-term financial stability that is needed to become profitable, given the substantial debt equity convergence anticipated combined with the need for substantial new equity capital. We currently expect that recovery, if any, to unsecured creditors, including holders of commercial hybrid notes and Swiss bonds will result in significant impairments and there is no assurance that there will be any recovery for the shareholders of SAS AB.

The next steps in SAS FORWARD are to launch the equity solicitation process to obtain the capital necessary to implement our SAS FORWARD plan and are working to build consensus for a plan of reorganization. It's expected to commence during this quarter, the second quarter for SAS. Additionally, we continue to work towards meeting the conditions under the DIP term loan agreement and to access the second tranche of the DIP financing during this second quarter.

With that, let's move please to Slide 14. A summary of the quarter, strong passenger demand improved yield and increased revenue. We have also launched a biofuel ticket option for our passengers starting this spring. And we can conclude that we have made steady progress in our SAS FORWARD plan with concluded lessor agreements course approval for the amended collective bargaining agreements and today the announcement of the Amadeus long term agreement.

On the outlook, we'll keep it short so that we have sufficient time for questions, but what will happen next. Well, strong trend for passenger demand. We continue to prepare for, again, a busier summer season in 2023. We have launched the sales at least for 20 new routes, and some of them have started flying, and we are therefore also continuing the process of recruiting and rehiring to meet the expected increase in future demand. We reiterate our financial projections for fiscal year 2023 and expect revenue to reach approximately SEK 40 billion, income before tax EBT excluding the gains or losses related to the completion of the Chapter 11 process to be in the range of SEK 4 billion to SEK 5 billion loss and we are currently reviewing our longer-term projections for fiscal year '24 to '26.

The preliminary assessment there based on stronger recovery in the demand than expected, is that our revenue for fiscal year '26 will be higher than our projection -- than we made in September 2022. We reiterate our projection that the company will reach positive EBT in fiscal year 2024, but our preliminary assessment is that EBT in fiscal year '26 will also be higher than our previous assessment in September 2022, when it stood at SEK 3 billion to SEK 4 billion. Now we will, of course, inform the market about updated projections for fiscal year 2024 to 2026 in due course.

About to wrap up, we are, of course, engaging with different stakeholders as part of the next phase in the Chapter 11 process, which includes launching the equity solicitation process, and as mentioned, this process is expected to commence during the second quarter.

And finally, I want to stress that we really see that being a leading airline in sustainability is key in our strategy forward, not least, because our customers will demand it and are demanding it. We will continue to invest in modern fuel-efficient aircraft in sustainable aviation fuels in emerging technologies and in partnerships towards sustainable products and services. Now we are executing on the plan. We have a clear road map ahead. We are seeing that progress.

And once again, a big thank you to all our colleagues around the system in SAS, who are working absolutely day and night to look after our customers. It was great to see that also, therefore, for our own teams, we have transported between 4.5 million and 5 million passengers again. And clearly, want to once again thank all our employees and all our colleagues around the system for their continued efforts.

With that, we would like to open up for questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Jacob Pedersen from Sydbank.

[Jacob Pedersen, analyst]

I have a couple of questions. I hope we can take them one by one. The first question relates to the cost of your ramp-up proceeding a business summer schedule, cost of ramp up in the first quarter. And also, as I understand you, you have some Chapter 11 costs as well in the first quarter. Is that correct? And can you maybe repeat or specify those costs as well?

[Erno Hilden, executive]

Jacob, as I mentioned, we have additional costs for the ramp-up in various cost categories. So it's hard to pinpoint an exact number for that. But that comes through the overall impact with lower crude productivity. And I'm also not having enough volume yet compared to pre-pandemic periods. Just as looking at to the ASKs for Q1, we were at around 75% comparing to 2019, which is the most recent regular period for us. But you can do an estimation just by comparing the unit cost for those periods and then taking into account the low levels of productivity in various areas. Yes. On the second part -- go ahead.

[Jacob Pedersen, analyst]

No, yes, the Chapter 11 cost.

[Erno Hilden, executive]

Yes, I was coming to that. So as I mentioned, we do carry some nonrecurring items for that reason. And those come in 2 main components. The process costs, which mostly consists of legal fees and advisory fees are estimated to be at some SEK 500 million for the period. And also the financial cost from the DIP loan is around SEK 340 million for the period. So those 2 items combined are the estimated total impact from the Chapter 11 process for the period.

[Jacob Pedersen, analyst]

Great. Okay. And even still excluding Chapter 11 costs, do you expect the deficit of SEK 4 billion to SEK 5 billion this year?

[Erno Hilden, executive]

That is our current outlook, yes.

[Jacob Pedersen, analyst]

Okay. Okay. Also, I would like to hear a bit about the cost of emissions -- emission rights going forward. You have some costs related to that as well in this quarter. What should we expect in this line going forward?

[Erno Hilden, executive]

Obviously, that is volume driven. And what is important to note is that during the pandemic, we had free emission rights that we didn't have to use. So comparing to that level, we will have an elevated cost. We're not giving any forward-looking guidance on that, but we'll be coming back to report on the specifics in the next quarters.

[Jacob Pedersen, analyst]

Okay. Okay. And then relating to Chapter 11 and also the DIP loan, the second tranche, which objectives do you need to reach from here in order to get the DIP loan? Is it new deals with the cabin crew? Is it new deals with other subsuppliers? What are we looking at?

[Erno Hilden, executive]

The DIP contract as such is available on the court docket. So all the conditions present are listed there. But the main components that we need to reach and meet are having CBAs with the most important or biggest employee groups or unions and also meeting the milestones for the cost savings that have been described in 2 ways: first, as an annual saving amount; and then as a cumulative saving amount for years '22 to '26. So those are the main criteria.

[Jacob Pedersen, analyst]

Okay. Okay. Great. My final question relates to your targets, projections for 2024, 5, 6 and possible upgrades of these. Will you continue with the same assumptions that you laid forward to begin with? These assumptions give you quite a substantial tailwind relating to expectations for fuel cost decreases and U.S. dollar decrease as well, should we expect that as we hold on to these assumptions going forward?

[Erno Hilden, executive]

Well, as we are saying, according to our preliminary view on the thing we see more positive development than was the case in September. But we cannot give you any specifics on that yet, because the work is ongoing. And as I said, we will inform the market in due course. But obviously, we need to take into account the sensitivities you mentioned. So everything will be depending on the jet fuel prices and the FX rates going forward. But as said, we will inform the markets when we are ready for that when the work has been completed.

[Operator]

And the next question comes from the line of Hans Jørgen Elnæs from WINAIR AS.

[Hans Jørgen Elnæs, analyst]

I have 3, if I may. The first credit card acquirers holdback. Does this apply to SAS today? In case it does, can you give some color on the holdback terms?

My second question, operational performance. Lufthansa Airport recently plans to cancel 34,000 flights during the summer '23 program. Kansas customers rely that SAS will operate its plan, summer '23 program as scheduled, especially in the peak season in July and August.

And my third question is about sustainability. The Copenhagen [indiscernible] Airport CEO is concern about the supply of sustainable alleviation due. What is your thoughts on this as Copenhagen [indiscernible] is the main hub for SAS? And may become even more strategic for SAS going forward?

[Anko Van der Werff, executive]

Yes. Perfect. So Erno will take holdbacks, I will take the other two.

[Erno Hilden, executive]

Yes. On the first one, the credit card holdbacks. Unfortunately, I cannot disclose any details, obviously, of our relations with the credit card acquirers are confidential. But it is not unusual for credit card acquirers to take such actions in situations like this. That's pretty much all I can say. However, I'd like to point out that as you can see from our very solid liquidity position, we are not really suffering of anything of such kind. So that pretty much is what we can say on the topic.

[Anko Van der Werff, executive]

Yes. So switching to operational performance in the industry, Hans Jørgen. Thanks for the question. We have, of course, also seen the Lufthansa news this week. Look, I think we have followed a different process from last year. I think what we are going through at the moment is we have been more conservative with our planning of capacity for coming summer, opposed to potentially then later on in the process, having to cancel when we see that we might fall short. So we have actually taken the other approach, which is be conservative and only really put that capacity out there when we are completely confident. And so therefore, really everything that we have for spring and summer is manned, right, and we see also our recruitment and ramping back up process really being on track.

Your third question -- and by the way, maybe a bit more color on your second question on operational stability. look, I still think that it's somewhat of an industry of an ecosystem issue. We know that both Boeing and Airbus, for instance, are still suffering from aircraft delivery delays, right? We also see that an airport such as Schiphol -- Amsterdam Airport Schiphol has come out again talking about capacity gaps, but it's a very different playing field than it was last year, right? I mean, last year, really that was far more widespread and far more across the board. Now I think it is far more under control. And like I said, we at least have taken the different approach and being more conservative before we put more capacity out there.

On sustainability, yes, I haven't seen exactly what Thomas said. I think you said it was Thomas Woldbye from Copenhagen Airport. But I agree at least to what your statement was, right? I mean we have to make sure collectively, and that is really not an SAS thing that truly is an industry item, we have to make sure that there is sufficient supply of sustainable aviation fuel. I've been very vocal about it. I've also been very vocal to key stakeholders in that process, such as ministers in various countries than what we see happening in the United States, right, the IRA and the investments in, call it, the green transition. That is something, of course, that we like much better, right? You see the Biden administration maybe even trying to create a new industry, right, literally a new industry and throwing a lot of money at making sure that there is production first and foremost, and then making sure that people can buy that.

We in Europe seem to be stuck, I think, a bit in some sort of a tax spiral where we want to tax everything. It's not about -- right, I keep on saying, it's not about a lack of effort. It's not about a lack of trying. So even for a lack of investments, right? When you look at our fleet and the investments we've done in A320neos, when you look at our investments into sustainable aviation fuel, when, again, we try and also promote this with our customers through our EuroBonus program, where we incentivize them to buy biofuel, when we now come out today right with the news on our bioproduct, we are at the forefront. But in the end, the message is, yes, we need the production of sustainable aviation fuel certainly for the next few years until we have cracked the code on electrical flying or hydrogen flying, right? So I can only concur we need more, and we like the way I think the United States is thinking about that by having incentives for a new industry in place and that I think would be something that Europe should look at. I hope that, that was okay, Hans, otherwise, of course, we can also follow up off-line.

[Operator]

Now we're going to take our next question. And the question comes from line of [ Christopher Thomas ] from [ Agnes ] Gustaf Real Estate Company.

[Unknown Analyst]

Well, I just want to say kudos to DSV partnership on the sustainable aviation fuel partnership. That's really good. I know that we have a goal of 2030 to be carbon neutral. And a lot of the questions were already asked previously. So I have just one personal question to both of you all. Would either one of you use your paychecks to buy SAS AB as a shareholder? Do you all have skin in the game?

[Anko Van der Werff, executive]

Yes. Thanks, Christopher. Let me first talk a little bit more about DSV. Good that you and you also saw that this week. It's again 1 of those initiatives where we have a corporate sustainability program where we're teaming up right or maybe even better corporate accounts are teaming up with us to address the same issue, right, making sure that they buy biofuel, they buy the sustainable aviation fuel, so that we can buy more in the end, right? It's again leading to the same at the same point that we need more production.

To come back to your second point, yes, I'm going to answer it in the very legal way that we have been communicating about this topic since I think last quarter or since 2 quarters, and that is that given the substantial debt equity conversions anticipated combined with the need for substantial new capital, we currently expect that the recovery, if any, to unsecured creditors and that includes the holders of commercial hybrid notes and Swiss bonds will result in significant impairment and that, therefore, there is also no assurance that there will be any recovery for the shareholders of SAS AB in the restructuring that we're going through. So I hope that answers the question.

[Unknown Analyst]

Yes. But I just want to ask you first, I know you're just seeing a legal part of it. But is there a way that you can say, reassure shareholders that we are headed the right path? I guess we are headed the right path, but it's just a reassurance that you personally would put your money into the game.

[Anko Van der Werff, executive]

Yes. So once again, right, the legal answer applies, look, everyone can read our quarterly reports. Everyone can read, of course, everything that we have put out there and make up their own decisions. And yes, being, of course, in this environment, I will have to stick to that to the legal answer I just gave you.

[Operator]

Now I would like to hand over to Klaus Landelius for any written questions.

[Unknown Executive]

Thank you, Nadia. We received a couple of written questions. The first one from a [indiscernible] who wonders if the agreement that Metal and Ryanair has signed is within the conditions that you have signed the agreement with Metal?

[Anko Van der Werff, executive]

Yes, I have not seen the content of the agreement. I think we have, of course, taken note of the deal that's been -- that was signed and that was announced, but I haven't seen it. Look, I think once again, this just highlights the need for industry agreements, right, for industry-wide agreements where what we have also said last year, right, leading up to our own strike in the summer last year was there is this [indiscernible] dynamic going on that indeed, you have union signing different deals with different conditions with different groups in different airlines, and that will lead to somewhat of [indiscernible] or has the risk of leading to a race to the bottom on the back of labor. And that is something that cannot be right.

So again, the industry agreement is the only solution for that. And so once again, I have not seen yet the details of that agreement. The long-term solution is an industry agreement, and we will work towards that. We will, of course, engage -- and yes, in a way, unhappy you would be good to see if indeed the Dansk Metal deal with Ryan would be very different, very advantageous, if you like, to the airline compared to what we signed with Dansk Metal last year, but I haven't seen that.

[Unknown Executive]

We have the next question from Kurt Hofman from Aviation Week and Air Transport World. Outlook on the long-haul market. What is the perspective for traffic to Asia as Russian aerospace will be closed for the longer term? What would be the right number of wide-body aircraft in the future?

[Anko Van der Werff, executive]

Yes. Thanks, Kurt. Thanks for your question. It's good to be in touch. Look, let me at least say -- and really, this is the first anniversary of the war in Ukraine, absolutely terrible, of course, to see what is still going on there. It's also clear by now that this indeed is not over in the next few weeks or months, right? So yes, we are constantly assessing what that means for us. In that sense, we are in somewhat of a worse situation than some of our at least Central European competitors, because that's rerating and the extra time that they have towards Asia is at least shorter than where we stand.

So we are assessing at least for this year, we will not go back to many of those Asian destinations that we flew prior to the pandemic. And I really would have to see a structural solution to the Russian war or Russian-Ukrainian more before I think we were able to do that. So that's why you have seen us indeed rejecting some of the wide-body aircraft. I think that over time, we can, of course, absorb and grow to the United States, for instance, more. But in order for Asia to be really back, yes, then you need Asian -- or sorry, Russian overflying to open up again.

[Unknown Executive]

Thank you, Anko. We have a question from [ Salerno Delia ]. What is the plan regarding the shares? Do you plan to issue new shares to convert the debt? If so, do you already know how much dilution it would be? Also, once the disruption is recovered, when SAS hopefully starts making good profits again, do you have any plans to buy back the said shares issued?

[Erno Hilden, executive]

The thing we can say at this stage is that we are continuing our progress under Chapter 11. And in the next phases, we will be starting the equity solicitation process. And during that, we will release further details on what to expect in the next phases, but that is pretty much all we can say on the thing right now. And also just repeating what Anko mentioned about the outlook, we are currently working on that, and we'll be informing the market with all the details in due course.

[Unknown Executive]

Thank you, Erno. Finally from [ Bettina Baker ]. Two questions. Have all lease restructurings been approved by the bankruptcy court and what is the strategy going forward for your business model?

[Anko Van der Werff, executive]

Yes. So yes, leases have been approved by the bankruptcy court. I think as we tried to explain, the cash benefit is already with us, but the accounting benefit isn't, right? So that will only really happen upon emergence. So in that sense, we're still penalized from an accounting perspective. But cash-wise, we are already paying those lower lease rates. Yes, and business model going forward, I think we've been very open about right SAS is, of course, that premium brand is a premium airline. We are very much a part of an alliance. We are, of course, having that long-haul wide-body still traffic as really the one connecting Scandinavia with the world and the world with Scandinavia. And you'll see us focus, of course, equally so strongly on our EuroBonus loyalty program, right? We've got more than 7 million people that are close to SAS, 7 million customers that really -- yes, are part of our lives, and we are part of their lives. So that in already as a core will tell you, right, we are focusing very much on those customers and our customers there.

[Unknown Executive]

Thank you.

[Anko Van der Werff, executive]

Then that's -- if I'm not mistaken, Klaus, are there any questions?

[Unknown Executive]

Yes. No more written questions.

[Anko Van der Werff, executive]

Perfect. Then we wrap up for today. We thank all of you for your participation and, of course, for listening in this morning and we will be in touch. Thank you for now, and we'll see you again at least in 3 months, if not before.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.