The management, board of directors, and the shareholder of Sterling Airlines A/S have been fighting a battle to keep the company alive. However, this has not had a positive outcome, and therefore Sterling Airlines decided to file for bankruptcy.
During the last three years, Sterling Airlines A/S has been through a lot of changes and since acquired by new shareholders in spring 2005 the company has taken on a merger with Maersk Air A/S. In 2005, the total loss of both airlines exceeded 800 MDKK and both owners wanted out one way or the other.
Therefore, all jobs in both airlines were at stake and so was also the competitive landscape in Scandinavian aviation since only the presence of a low cost carrier would ensure healthy competition and pricing on the market.
The merger process started in the autumn of 2005 and lasted until mid-year 2006, and by that time Sterling employed over 1,200 employees with far more job security than before, and expanded their route network. Sterling’s operation was progressing positively and the carrier’s finances were improving considering the massive losses that had been encountered in the preceding years. In 2007, the airline was doing very well and saw that more and more customers were choosing Sterling, and ended the year with a positive EBITDA (operational profit) for the first time in many years.
Oil and financial crisis
With the global financial recession that started in the autumn of 2007, Sterling by winter 2007 – 2008 was seeing signs of stagnation in the market. Significant fuel cost increases, and at the same time a planned heavy expansion of our activities.
By spring 2008, the airline industry was hit by decreasing demand and rapidly increasing fuel prices. That led to Sterling accumulating large losses. During summer and autumn the management of Sterling implemented a restructuring plan of the company resulting in a reduction in fleet and manpower, and a pull-out of a lot of loss-making activities. The full effect of these actions were planned to have impact start of 2009.
To get the company restructured, the shareholder of Sterling gave financial support from the end of Jul-08 to the end of Sep-08 transferring 444.5 million DKK to the company. The plan was to continue financial support into 2009. On the 29-Sep-08, the Icelandic financial environment started to collapse. Over a 3 to 4 weeks period, the whole financial system melted down, and that resulted in Sterling’s shareholder being unable to continue support to the company. Negotiations have been conducted with several potential investors, but it was impossible to make ends meet. The inevitable result is that Sterling Airlines A/S has no option but to file for bankruptcy.
(c) Centre for Asia Pacific Aviation. Date posted: 29-Oct-08
