SAA gets R3.5bn bank loan lifeline

SAA CEO Vuyani Jarana. 29 January 2019
SAA CEO Vuyani Jarana. 29 January 2019
Image: Jana Marais

Commercial banks have in principle approved R3.5bn of the funding South African Airways (SAA) requires to keep operating until April, CEO Vuyani Jarana said.

Speaking on the sidelines of the India-SA Business Summit in New Delhi at the weekend, Jarana said he saw no reason why the government and the banks would not continue to back the airline, as it had been delivering on its targets.

“They can see we are executing under very difficult conditions,” he said.

The airline, which received R5bn from the government in October, requires R21.7bn in funding to implement its turnaround plan by 2021.

In addition to the R3.5bn, it must raise a further R4bn in March as well as refinance or pay back R9.2bn in maturing loans.

SAA sources said the banks, which in principle approved funding totalling R3.5bn, still had to get internal approvals for the credit lines from their respective risk committees.

This may yet prove an obstacle, as banks have been unwilling to lend to SAA since July 2017, with the exception of short-term bridging finance.

Jarana said the focus at SAA was to cut its cost base and return to profitability, which would not happen in the next 24 months.

Declining to give details as SAA’s December quarter results still need to be presented to the board in February, he said after looking at the numbers, as well as the actions SAA had taken, people would be impressed at the progress that had been made.

Most of its domestic and regional flights were now earning a gross profit – revenue exceeding the cost of sales – and the airline was looking at increasing frequencies on some of these routes, he said.

The international routes remained a challenge, particularly to New York and Hong Kong, but various initiatives were under way to improve aircraft efficiencies on these routes and negotiate better deals with code-share partners.

The London-Johannesburg route was now profitable on an earnings before interest and tax basis, Jarana said.

Much work is also under way at SAA Technical to overhaul supply chain processes, cutting out middlemen, and ensuring that the business focuses on activities that are profitable rather than trying to do everything it has the capabilities to do.

“Everything must be done for profit. If it’s not going to be profitable, you will really have to motivate why,” he said.

Exceptions could include services of strategic importance where SAA Technical is the sole local supplier.

Where SAA had been run like a government department, the focus was now on changing the operating model to a proper international business, pushing profit and loss ownership and accountability to different sectors: international, domestic and regional, Jarana said.

“The critical thing is to rein in the elements under your control. Bring in commercial skills, bring in big data analytical skills for decision support, bring costs down.

“It is complex to transform this business, but it is doable if all of us work together.”

Responding at the summit to criticism of the lack of direct SAA flights to India, Jarana said the airline was in no position to launch new long-haul flights until it had addressed its cost base and reduced its reliance on government funding to operate.

The lack of direct flights between the two countries was one of the key issues raised by business people with President Cyril Ramaphosa and Indian Prime Minister Nahendra Modi.

Confederation of Indian Industry president Rakesh Bharti Mittal told the two leaders at the summit: “If we want to enhance trade and tourism between the two countries, this is one area where the two governments must engage.”

Trade between the two countries peaked at $11.8bn (R161bn) in the 2014/2015 financial year.

It totalled $10.7bn (R137bn) in 2017/2018.

SAA scrapped its direct flight to India in 2015, allegedly following political pressure by the Gupta family.

Jarana did not rule out the possibility of reinstating the route in future, but did not want to put any possible timeline to it. –

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