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Saab dodges bankruptcy bullet

Relief: Saab chairman and CEO Victor Muller expressed a feeling of relief at the court decision, having endured a stressful two weeks faced with uncertainty and the threat of bankruptcy.

Three months’ reprieve as court grants Saab’s appeal for bankruptcy protection

23 Sep 2011

SAAB has won its appeal against a court decision made two weeks ago denying its bid to enter voluntary administration as a way of protecting it from creditors.

The ruling buys Saab at least three months to secure an essential €245 million ($321m) in funding from Chinese companies Pang Da and Zhejiang Youngman and gives it a chance to repay creditors and resume production.

A media release from the Trollhattan-based company explains that under Swedish law, an application to enter voluntary administration cannot be approved unless there is reasonable cause to assume the purpose of the reorganisation will be achieved.

“The Court of Appeal has found that such conditions exist, thereby overturning an earlier ruling by the District Court in Vänersborg, Sweden,” it said.

According to a report in Swedish newspaper TTELA the Swedish company will now implement ‘operation cheetah’, a fast-track programme of cost reduction and efficiency measures with the aim of creating short-term stability.

 center imageLeft: Saab 9-4X. Below: Saab 9-5 production.

A target of a 15 per cent cost reduction is said to require a 25 per cent decrease in fixed and variable costs for producing the cars. Saab personnel and project manager Johan Formgren told TTELA efficiency work had been in progress for a while but would now be accelerated.

Saab says it will “identify areas throughout the whole organization where efficiencies can be gained… by eliminating duplication of work, streamlining processes, shortening lead times, improving coordination between departments and simplifying the organizational structure.”

A further blow to employees who have faced months of uncertainty and delays in salary payments, the company admits cuts to the workforce “cannot be ruled out”.

The company will also try and get the bankruptcy filings from its workers’ trade unions withdrawn as the Swedish state will guarantee salary payments for at least three months during the reorganisation period.

Being unable to pay employees was described by Saab chairman and CEO Victor Muller as “a stone on my chest”.

Official Saab blogger Steven Wade, an Australian from Hobart, wrote of the strangeness of celebrating the company’s entering into administration, “a process that most companies would prefer to avoid”.

“However, it gives you an idea as to how beaten down Saab has been in the public’s mind (and in our own, to some extent) when I tell you that there were, indeed, some small celebrations here today after the court in Gothenburg.”

Although admitting a feeling of relief in an interview on Swedish television station TV4, Mr Muller said he thought there was “no cause for celebration here”.

“We wanted this two weeks ago, we got it today and it is a very important step in the process to getting the company back on its feet but it is just one small step.”

On the investment from China, Mr Muller remained positive. “I think it will go very well, I think it will go quickly. There is tremendous support from all sides, including the Swedish government, for this transaction.”

Saab now has three months to put its business plan – which hinges on the Chinese investment – into action. Although Saab could not meet the three month deadline when it was put out to pasture by former owner General Motors in 2009, Mr Muller believes it is a different situation this time around.

“This is a situation where the funding is earmarked to come from the Chinese and we are not asking the creditors to make any sacrifices – we will pay them in full and we are asking for this protection because we couldn’t pay all of them at the same time,” he said.

“I think it’s feasible… assuming that within that period of time the approvals will be obtained for the Chinese investment.

“If that happens, say within the next six weeks or so, that will be well within the three month period, but if it takes longer we will still be OK because we would apply for an extension.

“We get support from the ministry of enterprise, we get support from the ministry of foreign affairs so I do think that we will see this transaction happen quickly now and at least we can await the outcome of the process in China for approvals under the protection of the law.”

As GoAuto has reported, Saab’s main car factory in Sweden has been idle since April due to a lack of parts from suppliers who are waiting to be paid.

The sooner Saab production restarts the better, as it will then be able to generate cash-flow to keep the business stable.

It hopes to restart production of its new 9-4X SUV at General Motors’ plant in Mexico by paying GM outstanding funds, thereby generating sales in North America, where it has thousands of unfilled orders.

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