Air France-KLM boss Ben Smith is not without controversy internally, but even his critics will have to give him one thing: he seems to be very good at diversionary tactics. For months he has been emphasizing at every opportunity how interested Air France-KLM is in taking over TAP Air Portugal because it would be a great addition to the group’s route network. On Tuesday evening he announced that he was joining SAS Scandinavian Airlines.
SAS chose Air France-KLM together with the financial investor Castlelake as new financiers with whose help the company wants to complete the insolvency proceedings by the end of the year. Air France-KLM will initially take a stake of almost 20 percent; after two years, the airline group can gain full control of SAS under certain conditions. The plan still needs to be approved by the American bankruptcy court responsible for SAS, the European Commission and a Swedish court.
The transaction has the potential to shift the tectonics of the European airline industry, particularly to the detriment of Lufthansa. SAS has been a partner of Lufthansa for decades and, together with it and several others, founded the “Star Alliance”, the world’s largest airline alliance. The routes between Germany and Scandinavia are operated as a joint venture. Now SAS is to cut ties with Lufthansa and also the “Star Alliance” and join the “Sky Team” network, which is dominated by Air France-KLM and Delta.
The deal fits the times: European aviation is consolidating. Almost all airlines survived the corona pandemic thanks to billions in government aid. For this reason – and because Lufthansa and Air France-KLM were temporarily not allowed to invest due to their own government requirements as part of their own aid packages – takeovers were not possible at the moment. But things are now gaining momentum again: Lufthansa agreed to take over the Italian start-up ITA Airways in the summer. British Airways parent company International Airlines Group (IAG) is planning to join the Spanish Air Europa, although Iberia and Vueling are already part of the group. In Norway, Norwegian wants to take over the smaller Wideroe. And Air Portugal – also a Lufthansa partner – is to be partially privatized over the next year.
Unfortunately, Air France-KLM still has an idea
SAS is one of the oldest airlines in the world; the states of Denmark, Sweden and Norway were involved for a long time. The airline’s decline began well before the corona pandemic. It struggled with very high costs in a relatively small and decentralized home market. In addition, since the 2000s there has been strong competition from low-cost airlines, especially Norwegian.
In 2022, the Dutchman Anko van der Werff became boss at SAS. After trying in vain to reduce costs sufficiently through negotiations with leasing companies, suppliers and unions, he decided to restructure the airline through insolvency proceedings under Chapter 11 of the American bankruptcy code. The airline filed for bankruptcy in July 2022, at a time when air traffic had already begun to recover. Van der Werff has experience with such restructurings – he had already initiated and successfully completed such a procedure at the Colombian airline Avianca.
SAS boss Anko van der Werff.
(Photo: IMAGO/Christine Olsson/TT/IMAGO/TT)
As part of Air France-KLM, van der Werff now sees better prospects for SAS. The agreement is “a milestone” that shows that “our new investors believe in SAS and our potential.”
What now needs to be clarified is whether Ben Smith’s publicly expressed enthusiasm for TAP Air Portugal was actually a diversionary tactic. There are some indications that Smith is serious about this too. Air France-KLM is “determined to play an active role in the consolidation of European aviation,” the company said. Joining SAS is “a component” of the group’s strategy. In other words: There are other components.
From Lufthansa’s perspective, this is most likely TAP Air Portugal – unfortunately, because TAP, like SAS, is a long-standing partner. In recent years, Lufthansa has more or less ignored SAS and missed many opportunities to take over the airline. Losing TAP would be much more painful for Lufthansa because the Portuguese airline covers the market between Europe and South America well for them and the “Star Alliance”. One could even argue that TAP is at least as important to them as ITA. The Portuguese government announced details of the privatization at the end of September – at least 51 percent of the airline is to be sold. Like Air France-KLM, Lufthansa has also confirmed that it is interested. IAG is also likely to want to bid, although the European Commission would be watching particularly closely given its strong presence in neighboring Spain.
As far as ITA is concerned, Lufthansa has still not formally notified the entry to the Commission, which must approve it. Lufthansa absolutely wants to avoid a lengthy exam and would rather do as much homework as possible in advance. But time pressure is increasing – integration should begin at the beginning of next year at the latest.