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Running an airline business is is no mom-and-pop operation as the planes, maintenance and fuel are expensive.
Running an airline business is is no mom-and-pop operation as the planes, maintenance and fuel are expensive.

Aviation

1960s: Check, please

Entering the Jet Age was exciting, fun – and expensive. Owners had to inject new capital into SAS in 1961.

The airline business is no mom-and-pop operation. The planes are expensive, the maintenance is expensive, and whether the bottom line comes out in red or black may come down to a factor such as fuel prices.

In the late 1950s, at the dawn of the Jet Age, the airlines that wanted to stay in the race had only one option, and that was to upgrade their fleets to jet planes that gave them faster connections and longer reach, something that passengers appreciated. However, the investments needed for new fleets were huge.Entering the Jet Age was going to cost SAS 700 million Swedish kronor.

Sweden’s Dagens Nyheter wrote that the total cost of entering the Jet Age was going to cost SAS around 700 million Swedish kronor, or about 800 million euros in 2016 terms.

SAS had grown by leaps and bounds in every way during the 1950s. In 1951 it recorded 73 million ton-kilometers. By 1960, the number had more than tripled to 246 million. The number of passengers had risen from 482,000 in 1951 to 1.8 million in 1960, and the number of staff from 6,600 to 14,600.

Also, while the company’s core business, the airline, had been profitable until 1957, it recorded a loss of SEK 80 million in 1960, its Thailand and Mexican operations were bleeding money and needed another 50 million, and the new SAS Royal Hotel in Copenhagen had cost twice as much as originally planned. SAS was on the brink of bankruptcy. New capital was needed, and fast.

That was easier said than done, since SAS was a state-owned company. Injecting taxpayers’ money is never easy, but it gets even more complicated with three countries involved in the process – not to mention the private sector that was also expected to write a check.

The governments and the private sector were full partners in SAS in all three countries. Sweden’s ownership was three-sevenths, while Norway and Denmark had two-sevenths each. The original need for new capital was thought to be SEK157.5 million, divided according to ownership shares: Sweden 67.5 million, Norway and Denmark 45 million each, split between the public and private sectors.

That would have covered the losses and given SAS new life going forward, but both Denmark and Norway were skeptical. In Denmark, that included the government, but since not investing would have meant the dissolution of SAS, the Danes agreed to put in “their share.”

In Norway, a handful of banks and insurance companies had committed 10 million, about half of the private sector’s share, but the government promised to cover whatever the private sector couldn’t raise.

In Sweden, Transportation Minister Gösta Skoglund was working to keep SAS going, and he spoke highly of the Scandinavian values the airline represented.

“One of the arguments for additional financial support for SAS has been that SAS is a concrete example of Scandinavian cooperation, something we haven’t seen elsewhere,” he said in a statement in April 1961.

“It’s obvious that the three countries’ air traffic needs are best met with one airline,” he added. “SAS is also valuable for promoting our countries abroad and in that way it helps, for example, with tourism.”

SAS was not alone in its financial worries, and the new capital gave the company a reason for optimism. After all, it was selling more tickets than ever before, and its ticket revenues were at an all-time high.  The original estimates were adjusted upward, and 200 million kronor was thought to give the company some breathing room.Curt Nicolin and Marcus Wallenberg in 1961.

“The next technological innovation won’t be here until the end of the 1960s, so SAS will have a decade to write off the jet plane investment,” Dagens Nyheter wrote.

Not everybody was so understanding. The Swedish newspaper Expressen raised the question of the three countries’ political tug-of-war about SAS’s operations.

“Had they focused on the best interests of the airline instead of defending national interests, SAS would today have its major base in the only logical place, Copenhagen, offices and services where they would be most effective,” the paper wrote. “That hasn’t been the case at all. It’s time for a radical reconstruction.”

In 1961, CEO Åke Rusck resigned, and Curt Nicolin took over for the next nine months. He cut the staff by 18 percent and made sure the company became financially responsible again. When his successor, Karl Nilsson, signed off the books in 1963, SAS was in the black again, making a profit of SEK 21 million.

Disaster averted. Time to think big again.

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