Moody's: SAS outlook now negative

Moody's Investors Service said it changed the outlook for the Ba3 senior implied rating, the B1 senior unsecured issuer rating, and the B2 subordinated ratings of Scandinavian Airlines System to negative from stable.

Moody's said the outlook change reflects the structural challenges SAS faces, which are similar to the ones the other European flag carriers have to deal with, but compounded by SAS' reliance on its home market, its already weak financial structure, and Moody's expectation that the signs of recovery in traffic are tenuous and not supported by any recovery in yields.

Despite the progress achieved in the company's Turnaround 2005 restructuring program, the rating action was prompted by Moody's expectation that intensified competition from low-cost airlines, new fare policies and the less lucrative customer mix will continue to put pressure on margins, load factors and yields, especially in the Scandinavian and European markets.

Moody's said it is its view that these elements will put a strain on SAS' operating performance over the intermediate term, which may slow down the return to more conservative cash flow to debt coverage ratios.

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