SAS AB (publ), the Scandinavian airline, is a company steeped in history, a familiar sight soaring across the skies of Northern Europe. Founded in 1946, it has become synonymous with reliable, comfortable air travel in the region. But behind the sleek exterior of its aircraft and the friendly smiles of its crew, a financial ghost is lurking, a specter that may be even more unsettling than the company's recent Chapter 11 restructuring.

While much of the financial world focuses on SAS AB's ongoing efforts to emerge from bankruptcy, a quiet, yet potentially explosive detail lies buried within its latest quarterly financial data: an alarming trend in its net working capital. For those unfamiliar with this financial metric, it represents the difference between a company's current assets (things it can quickly turn into cash) and its current liabilities (debts it needs to pay in the short term). A healthy net working capital is crucial for any business, providing the liquidity it needs to meet immediate financial obligations and capitalize on growth opportunities.

For SAS AB, the picture is far from healthy. In fact, it's downright chilling. The company's net working capital has been plummeting into a deep, negative territory, a trend that seems to have escaped the attention of most analysts. As of the second quarter of 2024, SAS AB's net working capital stands at a staggering -19.04 billion Swedish Krona (SEK), or roughly -1.8 billion USD. This represents a drastic deterioration from the already concerning -15.83 billion SEK reported just a quarter earlier.

Source: SAS AB Q2 2024 Financial Report

The implications of this trend are potentially devastating. A negative net working capital signals a severe liquidity crunch. SAS AB is essentially running out of readily available resources to cover its short-term debts. Think of it as constantly juggling bills, struggling to pay one as another comes due. This precarious situation raises a critical question: how is SAS AB managing to keep the lights on?

The answer may lie in an intricate dance of debt management. The company's financial data reveals a steady increase in its short-term debt, particularly in the "short long-term debt" category, which represents the portion of long-term debt due within the next year. This suggests that SAS AB might be resorting to short-term borrowing to plug the holes in its working capital, effectively kicking the financial can down the road.

Source: SAS AB Financial Statements

While this strategy might provide temporary relief, it creates a dangerous debt cycle. The more the company relies on short-term borrowing, the higher its interest expenses become, further straining its already fragile finances. This could lead to a scenario where SAS AB finds itself trapped in a debt spiral, unable to escape the clutches of ever-increasing financial obligations.

The Ticking Debt Bomb

This alarming trend in net working capital is the ghost in SAS AB's machine, a silent threat that could undermine its recovery efforts. While the airline industry is inherently cyclical, and SAS AB has faced challenges before, this level of financial instability warrants serious attention. It's a debt bomb ticking away, and if it detonates, the consequences could be far-reaching, not just for the company but for the Scandinavian air travel landscape as a whole.

Hypothesis:

The continuous decline in SAS AB's net working capital, despite emerging from Chapter 11, indicates a deeply rooted liquidity problem, potentially masked by a reliance on short-term debt.

Supporting Numbers:

Q2 2024 Net Working Capital: -19.04 billion SEK

Q1 2024 Net Working Capital: -15.83 billion SEK

Increase in short long-term debt over recent quarters (refer to SAS AB Financial Statements).

Net Working Capital Trend

"Fun Fact: Did you know SAS AB was the first airline to offer around-the-world service over the North Pole? It began this service in 1954, showcasing its pioneering spirit. However, financial innovation might be a more crucial pioneering act for the airline in the current climate."