Spanair's restructuring plan may falter

22nd August 2008, Comments 0 comments

Shares of the financially-troubled low-cost airline's owner SAS have retreated 10 percent since the plane crashed on Wednesday.

22 August 2008

MADRID -- After the SAS-owned Spanair plane crashed and killed 153 passengers, many observers are asking what will happen to the troubled airline's restructuring plan announced in July.

Hit by surging global crude prices and declining profitability, Spanair director general Marcus Hedblom warned in mid-August that if the low-cost airline was to pull through its financial crisis, it would have to reach an agreement with Spanair's workers.

"If we don't," he said, "the company will not survive."

In light of the latest problems facing the company, the airline may need more than an agreement with its workers to emerge from its woes.

Luis Cuadrillero, a Madrid equity research analyst at Intermoney Valores, told El Pais that the accident has complicated matters for the airline's restructuring plans.
"We could say that the plan was a bit challenging to begin with," he said. "The crash now makes it even more challenging."

This was also echoed by Spanair president Jordi Mauri, who admitted Thursday that the 153 deaths "will impact" the airline.

He said talks with labour unions over laying off about 1,200 employees would continue but could not say when. Spanair's main priority now is dealing with the aftermath of the crash.

Cuadrillero said that it was impossible to predict whether the accident would be a fatal blow for the airline. However, he pointed out precedents which do not bode well for the Spanish carrier.

PanAm, for example, was already facing financial difficulties when it crashed in 1988 in Lockabee, Scotland, after a bomb was detonated on board. The attack eventually led the US airline to file for bankruptcy.

Another example was Swissair Flight 111, which crashed into the Atlantic Ocean in 1998. The airline subsequently folded.

Cuadrillero said Spanair's status as a non-listed company makes it difficult to assess the immediate economic impact the crash will have on the airline.

SAS, which is a listed company in Stockholm, saw its share price drop Thursday by 3.4 percent. The carrier's shares had plunged by 10 percent from the crash to Wednesday's market closing.

The analyst believes that the next few months will be crucial for Spanair's survival.

"The fate of the airline hinges on passenger confidence in its brand-name," he said. "If passenger numbers do not see a sharp drop in the coming months, Spanair could pull through."

Spanair's Hedblom said recently that for the airline to be profitable, global oil prices would have to drop below USD 120 per barrel. Crude is now below that level - but surely the firm never expected a tragic accident to be a new variable in its rescue plan.

[El Pais / Enrique Tessieri / Expatica]

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