Scandinavian airline SAS expects "economic recovery" after more job cuts, heavy cost savings and new money from its owners.

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In the face of swelling losses the Scandinavian airline SAS announced Tuesday additional cost savings of 2 billion kronor ($285 million) and a 5 billion kronor rights issue in a move to strengthen its troubled balance sheet. Almost 700 jobs will be cut.

The airline’s fourth quarter operating loss fourfold to 1,519 million kronor. Net losses narrowed to 1.3 billion kronor, almost twice as much as seen by analysts.  Sales fell 19 percent to 10.3 billion kronor.

SAS shares closed down 28 percent to 2.54 kronor on a slightly positive Stockholm Stock Exchange.

"The unprecedented severity of the market downturn has been far worse than anticipated," SAS' chief executive officer Mats Jansson said.

A year ago Mats Jansson launched an ambitions cost saving scheme called Core SAS, including a 40 percent staff cut and divestment of assets.At the time the airline also made a 6 billion kronor rights issue. Apparently that didn't do the trick.

Now the company is forced to add an additional 2 billion kronor to the program, bringing the total cost savings program to 7.3 billion kronor. It has also signed a letter of intent with the cabin crew unions agreeing to 500 million kronor of cost savings during the first quarter of 2010.

The airline, half-owned by Sweden, Norway and Denmark, also plans to raise 5 billion kronor from its owners. The proposed rights issue, with preferential rights for SAS shareholders, is supported by SAS' largest shareholders and a consortium of underwriting banks. The Swedish government said in a statement that it will support the right issue.

"When the firm, staff, creditors and owners all pull together then SAS can be a competitive company," Enterprise Minister Maud Olofsson said in a statement.

"We have analyzed and valued the measures which the management has proposed. Our judgement is that the plan is a prerequisite to creating a competitive SAS and giving the Swedish taxpayer a competitive return on invested capital."

So will these measures save the troubled airline? Mats Jansson seems to believe that and said that the airline has a "stable foundation to build on" and with new cost-saving measures and fresh money from its owners it's "well-equipped for the expected economic recovery".

January traffic decreased by 5.1 percent versus last year while it carried 1.7 million passengers in the month, down 3.7 percent from last year.

The airline's loss over the whole of 2009 was 2.95 billion kronor. In Novermber SAS surprised by posting the company’s first quarterly profit in two years.