SAS Group Interim Report January-March 2010

Key ratios January – March 2010

• Operating revenue: MSEK 9,495 (11,296) (-16.0%)

• Number of passengers: 5.735 million

• Earnings before non-recurring items in continuing operations: MSEK -844 (-889)

• EBT margin before non-recurring items in continuing operations: -8.9% (-7.9%)

• Net income for the period: MSEK -712 (-748)

• Earnings per share[1]: SEK -0.29 (-0.74)

Highlights

• Cost savings program strengthened by SEK 2.5 bn and totals SEK 7.8 bn. 63% implemented as of March 31. Earnings effect MSEK 750 in Q1

• Unit cost down 7.8%[2] in Q1

• RASK down 1.7%[2] in Q1, up 3.1%[2] in March

• Rights issue of SEK ~5 bn with preferential right for SAS’s shareholders in progress

• Main conditions for the four principal owners’ participation in rights issue were satisfied:
– Agreements with pilot and cabin crew unions for annual cost savings of MSEK 500
– Refinancing of SEK 2 bn of debt maturing in 2010 through SEK ~2.2 bn through issuance of bonds and convertible bonds (additional SEK 1 bn to be issued following the rights issue)

• Negative earnings effect up to and including April 21 from disruptions due to volcanic ash estimated to MSEK -460. Negative effect per day MSEK 50-90, higher on busy travel days and lower on weekends, assuming all flights cancelled

[1] Based on 2,467,500,000 shares, 1,007,233,500 shares respectively
[2] For Scandinavian Airlines, compared with the same period in 2009

Comments by the CEO

2009 was probably one of the most challenging years that the aviation industry has experienced. GDP growth forecasts suggest that 2010 will be stronger than 2009, although forecasts for Sweden were recently revised slightly downward. In its most recent full-year forecast in March, the IATA estimated global losses for the aviation industry in 2010 to total USD 2.8 billion. However, due to the recent effects of the extraordinary disruption to air travel services due to volcanic ash, this forecast will be revised downwards – 2010 will continue to be a tough year for the aviation industry. However, excluding recent events, some signs of improving demand have been noted in SAS’ markets but uncertainty still remains regarding the yield development.

For January and February, which are the seasonally weakest months of the year, the SAS Group posted income of MSEK -960 before non-recurring items, which was in line with the Core SAS plan. However, performance in March was slightly better than expected with a significantly improved load factor of 73.1%, up 8.6 percentage units compared with the same period last year. Revenue in relation to capacity (RASK) increased 3.1% in March compared with the same period in 2009, while our costs continued to decline. It is also highly gratifying that our total passenger figures increased for the second consecutive month despite extensive capacity reductions.

The Group’s income before non-recurring items in continuing operations amounted to MSEK 116 for March, which was slightly better than anticipated. Accordingly, income before non-recurring items for the first quarter totaled MSEK ‑844. Non-recurring items totaled MSEK -128, which resulted in income before tax of MSEK -972 for the first quarter. The Group’s largest operation, Scandinavian Airlines, reported EBIT before non-recurring items of MSEK ‑235 for the first quarter, an improvement from the same period in 2009.

We can now see increasing effects of our Core SAS cost savings program. Measures have been implemented according to plan and the effect on earnings for January-March was MSEK 750 compared with the same period in 2009. Unit cost for Scandinavian Airlines during the period fell 7.8% compared with the same period in 2009, primarily due to lower costs for personnel, technical maintenance and aircraft leasing. This shows that our cost saving measures are providing the intended effects and we will continue to fully implement the outstanding measures corresponding to SEK 2.9 billion. The total cost savings program now amounts to SEK 7.8 billion and includes savings negotiated in collective agreements effective April 1. The extensive centralization and efficiency-enhancement process of the SAS organization, which is a key part of the cost savings program and has been under way since the beginning of the year, continue to show strong progress. The number of FTEs was reduced by 300 between January and March 2010, in addition to the reduction of 2,900 FTEs that had been implemented at year-end 2009. Accordingly, approximately 70% of the total planned reduction of 4,600 FTEs had been implemented as of March 31. To balance supply and demand, capacity reductions of 21 aircraft also form part of Core SAS. 20 of these aircraft had been withdrawn from service by the end of the first quarter and the final aircraft will be removed from operation by the end of the third quarter in 2010.

On April 7 the Annual General Meeting approved the Board’s proposals of a rights issue of approximately SEK 5 billion. The rights issue process is ongoing and we are now in the subscription period which will continue up to and including April 29. In conjunction with the rights issue, our liquidity will be further strengthened by an additional SEK ~3.2 billion through the issuance of bonds, including the convertible bond issue and SEK 1 billion in new bonds which are to be issued subject to prior completion of the rights issue.

As mentioned earlier, the Scandinavian airspace has been closed or partly closed from April 15 due to ash from the Eyjafjallajökull volcano in Iceland. As a consequence, we cancelled the majority of our flights from April 15. The situation in the rest of Northern Europe is similar and represents a major hit to the entire aviation industry. Up to and including April 21, the negative impact on SAS’ earnings is MSEK ~-460. With safety as the number one priority, we are working closely together with other major European airlines and the aviation authorities to find solutions to resume full operations. We regret the situation and the consequences for our customers and SAS will do its utmost to help them in a difficult situation.

Despite the uncertainty regarding potential additional effects on our operations due to the volcanic ash, we continue to implement Core SAS according to plan. With a satisfactory liquidity situation, and estimated remaining earnings effect of SEK 4.8 billion in 2010–2012 from our cost savings program, we are confident we can handle the negative effects in a tough 2010 and benefit from a potential recovery in the market.

Mats Jansson
President and CEO

Direct questions to: Investor Relations SAS Group: Vice President Sture Stølen +46 8 797 14 51, e-mail: investor.relations@sas.se

All reports are available in English and Swedish and can be ordered on the Internet: www.sasgroup.net or from: investor.relations@sas.se