I have to admit that I have soft spot for Scandinavian Airlines (SAS). My very first trip to Europe in 1985 was aboard an SAS DC-10 from Los Angeles to Copenhagen. And though SAS hasn’t flown to LA in years, there is still a connection in history. SAS ran the first polar nonstop from Europe to LAX back in the 1950s. There is even a plaque that used to sit outside the lower level of the Bradley Terminal celebrating the feat. (Today it’s outside the Flight Path Museum.) Oh, and I used to love looking up and seeing SAS fly over my house, because I could always recognize those distinctive (now long gone) belly stripes. But despite having fond memories of the airline, there is very little to say today that’s positive. SAS is having a really rough go of it, and it’s now trying for yet another turnaround.

I think this is the third effort in the last decade to create a turnaround plan. The most recent came just last year when SAS launched its awkwardly-titled 4 Excellence plan. Apparently it failed 2 become Excellent because it’s already going back to the well. This time, it’s the 4 Excellence Next Generation (or, as the kids call it, 4XNG) plan. The goal is to improve earnings by about half a billion dollars a year, take in a half billion dollars by selling assets, and extend a line of credit for a half billion dollars from banks and shareholders to keep the airline running.

How will the management team achieve these gains? Well, you can probably guess. Part of this will require “new union agreements for personnel.” This means wage cuts and most people will go from a defined benefit to a defined contribution plan. There will also be a “centralization of administration functions,” whatever that really means, and there will be more outsourcing with call centers and ground handling.

Then they’ll sell of the ground handling and aircraft engine-related assets. They’ll also sell airport real estate that’s currently owned by the airline. And yes, they’ll try to sell off Widerøe, a regional airline, if anyone will buy it. So let’s see, cut labor costs + sell assets = profit! This isn’t a new formula – we’ve seen it all too often as troubled airlines try to stay afloat.

How Did We Get Here?
Why is SAS in such persistent trouble? Lots of reasons. In fact, it almost make you feel bad for the airline (if it were a person with feelings). There is just so much going against it, but these problems are the same headwinds that face a lot of small market-based airlines around the world.

1. It’s half owned by the government. And not just any government, but THREE governments – Denmark, Sweden, and Norway. Just imagine how difficult it is getting business done when the government is in charge and multiply that by three. Or maybe it’s to the third power.
2. It’s a true legacy airline that has had years and years of built-up, well, legacy everything. Just imagine what US legacy airlines have worked through and then keep in mind that Scandinavian nations are generally socialist. That means there are a lot of costs built-in. This isn’t a problem in a vacuum, but SAS doesn’t operated in a vacuum. It’s in a global market, so competitors may not face the same costs.
3. Its home markets are small. The three home countries combined have only about 20 million people, about the same as the entire New York metro area. Copenhagen, where the long haul fleet primarily flies, has a metro area population similar in size to Kansas City.
4. On top of that, SAS is seeing increasing competition from low cost carriers, who are coming in and making a big dent. Norwegian is the biggest threat with large and growing operations in all three of SAS’s main hubs of Copenhagen, Stockholm, and Oslo. Norwegian will be starting long haul flights next year as well, just to make things suck more for SAS.
5. SAS makes Delta look like it has a uniform fleet. SAS still flies MD-80s, 737 Classics, Next Generation 737s, and Airbus narrowbodies. The former two will disappear in the near future, making things a little better, but there will still be a relatively small split Airbus/Boeing fleet with the narrowbodies.
6. It has the wrong airplanes in its fleet. According to CH-Aviation, SAS has 28 737-600s. Those are the little ones that are not very cost efficient on a per seat basis. They might be good niche airplanes, but that’s a pretty big “niche” with 28 planes for an airline the size of SAS. It also has a long haul problem with only 4 A330-300s and 7 of the underpowered, gas guzzling A340-300s.

I could probably go on and on, picking at things like an inferior business class seat, but you get the point. What does this leave SAS management with? An airline that’s going to continue to struggle, most likely. On the short haul European routes, low cost carriers can often serve routes more efficiently and certainly with cheaper fares. Norwegian is betting it can do the same on long haul, though that has yet to be proven by any low cost carrier.

With any luck, SAS will find a way to keep itself viable, but it has a very tough road. I don’t envy the management team over there.

[SAS Belly Photo via Flickr user Hunter-Desportes/CC 2.0]

At the end of October, I asked whether Bombardier and SAS should kiss and make up over their differences. Yeah, sure there were three Q400 landing gear issues in two months, but what’s a little malfunction between friends?

Fortunately, that’s all water under the bridge now, and the two sides did come together to hash out a reconciliation. What’s the plan? Bombardier will fork over 1 billion Swedish kronor. That’s only about $164m today, but just wait a week or two and I’m sure that’ll rise to, oh , maybe $300 or $400m.

But wait, there’s more.

As part of the deal, SAS has to buy 27 new planes from Bombardier. Thirteen of those are CRJ-900 jets and fourteen are . . . Q400 NextGen birds. Whaaaaaaaat?!?

Oh yeah, they’re going back to the well. Presumably the title “NextGen” can be interpreted as “LandingGearNowWorks.” But I’d like to quote CEO Mats Jansson here from back in October. “Confidence in the Q400 has diminished considerably and our customers are becoming increasingly doubtful about flying in this type of aircraft.”

Uh oh.

So, they took a huge hit by grounding the entire fleet and saying it wasn’t safe. Now they’re going back to flying the aircraft. Even if everything is fixed up, this still is not going to be an easy marketing sell for the airline to the locals. I bet they’re wishing they hadn’t bad-mouthed it so much back then.

Judging from comments on previous posts in the last couple of days, I’m guessing many of you have already heard that SAS had yet another Q400 turboprop land with gear problems. This makes for an unbelievable third gear problem resulting in an emergency landing in less than two months. If you’d like to see the rather boring video of this landing, click here.

Before anyone had time to figure out what happened, SAS came out saying that they were permanently grounding the plane type and selling their fleet of 27 as soon as possible. That would certainly imply that SAS blames Bombardier, the manufacturer of the plane, for this. But is it their fault?

I’m not really convinced of that. There are many other operators of the Dash 8 in the world, including Horizon Air here in the US. They operate in the Pacific Northwest in a damp, cool climate not unlike that of Scandinavia. Their fleet is also about the same age as that of SAS with most aircraft being delivered in 2001. So why hasn’t Horizon had a single problem thus far?

Bombardier’s Marc Duchesne did say, “We did an internal investigation that confirmed there was no systemic problem with the landing gear of the Q400.” That would certainly point to something going on with the aircraft’s operation specific to SAS, but of course we just don’t know yet. Bombardier has also said that this problem was unrelated to the previous gear problems.

So, should SAS be grounding these planes and selling them off? It’s not an easy decision, but I would argue that it’s too early to make that kind of decision. They’re estimating this will cost the airline anywhere from $47m to $62m. (Actually 300m to 400m Swedish Krona.) That’s a lot of money considering they don’t even know what the problem is yet.

I think back to the DC-10, an airplane that had more than its share of serious problems. Unlike the Q400, its problems actually caused many fatalities, and it was ultimately grounded by the US for a short time until problems were fixed. That was a situation far more serious than what SAS is dealing with today, yet major operators like United and American did not walk away from the plane and sell their fleets. The planes were fixed and ended up having a good safety record until their retirement in the late 1990s and early 2000s.

Of course, it’s easy for SAS to say that this is the third landing gear problem they’ve had and their customers have lost confidence in the aircraft. They have to get rid of it. But what if it really is something that SAS was doing? In that case, getting rid of the planes will only cost them more money without measurably improving public perception. If it is their fault, they’ll take the hit regardless. And what if it is an easily fixable problem? Will it be worth it to ditch the plane entirely? I remain unconvinced.

I completely agree that they should ground the aircraft until they figure out what’s going on and have other airlines do the flying for them in the short run. But selling the planes off right now seems premature. Let’s just hope they figure out what’s going on quickly so that it doesn’t have the opportunity to happen again.

Last week I wrote about SAS’ two accidents involving landing gear problems on the Q400. This story keeps getting stranger.

On Thursday, Horizon Air announced that they had completed inspections of all their Q400s and everything would be back to normal Tuesday, Sep 24. They took ads out in local papers reassuring customers that inspections were completed, but they made no mention of finding anything wrong.

Meanwhile, a report came out this morning saying that SAS found corrosion of the landing gear on 25 of the 27 planes inspected. They were fixing the gear and then they would put everything back into service.

As if that wasn’t enough, there was yet another incident this weekend. Augsburg Airways, which flies regional flights for Lufthansa, had a Q400 land with its nosegear up at Munich over the weekend. The SAS incidents both involved the main gear, but this still has to have many people thinking about the connection, not to mention how this relates to the ANA nosegear problems from March.

I wish I had more answers than questions at this point, but I don’t. What the heck is going on here? Why is it that Horizon would seemingly find no problems (unless they just aren’t telling us) yet SAS would find some on almost every plane? It’s not like they operate in very different climates. I’d argue that the environment is about the same for both operators. Anyone else have any theories?

What a strange week for the Bombardier Q400 and for Scandinavian airline SAS. After having the gear collapse on two separate landings within a couple of days, I think it’s safe to say there’s a problem here.

First, there was the landing in Aalborg, Denmark last Sunday. You can watch the really cool video coverage by clicking below.

That may look worse than it actually was. Everyone got out fine, as they usually do with gear collapses upon landing.

The second one happened yesterday on a flight to Palanga (Lithuania). According to the release from SAS, the flight apparently “experienced technical difficulties” and diverted to Vilnius (also Lithuania). Once again, everyone was fine, but there are really no details here, but I’m told it was again a landing gear collapse.

This makes sense because Bombardier immediately called for inspections on all Q400s with more than 10,000 cycles (1 takeoff and 1 landing count as 1 cycle). SAS decided to ground their entire fleet immediately until inspections could be completed even though not all of them had more than 10,000 cycles.

In the US, I believe this only affects Alaska’s regional airline Horizon Air. These guys canceled about a quarter of their flights yesterday and will do the same today. Make sure you check with them before you go to the airport to find your flight canceled. Other than that, nobody here should be affected. Continental will have Q400 flights from a regional partner starting next year but that’s not an issue now. And Hawai’i's Island Air recently got rid of their Q400s as they try to survive.

I’m curious to see what this means going forward. If they don’t find any problems on the existing fleet, will they just started requiring inspections as each plane turns 10,000 cycles old? Something tells me that the accident investigations will turn up some common thread. If not, it’ll have just been an amazing coincidence.