Commercial banks have in principle approved R3.5bn of the funding SA Airways (SAA) requires to keep operating until April, according to CEO Vuyani Jarana.
Speaking on the sidelines of the India/SA Business Summit in New Delhi at the weekend, Jarana said he sees “no reason why” the government and the banks won’t continue to back the airline as it has been delivering on the targets it has set.
“They can see we are executing under very difficult conditions.”
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 re-finance or pay back R9,2bn in maturing loans.
SAA sources say the banks that in January approved in principle funding totalling R3.5bn, still have 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 won’t happen “in the next 24 months”.
Progress
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 has taken, people will be impressed at the progress that has been made.
Most of its domestic and regional flights are now earning a gross profit (revenue exceeding the cost of sales), and the airline is looking at increasing frequencies on some of these routes, he said.
The international routes remain a challenge, particularly to New York and Hong Kong, but various initiatives are underway to improve aircraft efficiencies on these routes and negotiate better deals with codeshare partners.The London-Johannesburg route is now profitable on an earnings before interest and tax (ebit) basis, Jarana said.
Much work is also underway 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 has been run like a “government department”, the focus is 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”, he 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,” Jarana said. “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 is in no position to launch new long-haul flights until it has 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.
“If we want to enhance trade and tourism between the two countries, this is one area where the two governments must engage,” Rakesh Bharti Mittal, president of the Confederation of Indian Industry, told the two leaders at the summit.
Trade between the two countries peaked at $11.8bn in the 2014/15 financial year. It totalled $10.7bn in 2017/18. SAA scrapped its direct flight to India in 2015, allegedly following political pressure by the Gupta family. Former public enterprises minister Barbara Hogan testified at the Zondo commission that pressure was placed on her to ensure SAA dropped the route.
She didn’t act on the instruction, and was eventually fired from her role. SAA’s slot was taken over by Jet Airways, which has also since cancelled the route. Both airlines, as well as the state-owned Air India, are in deep financial trouble and are unlikely to be in a position to re-instate flights.
Jarana did not rule out the possibility of re-instating the route in future, but did not want to put any possible timeline to it.
“As we optimise the cost base of SAA, a lot more destinations will become viable,” he said.
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