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SAA to shrink services as part of revamp

Treasury is considering a R13 billion bailout.

South African Airways will fly 23% fewer flights by the end of the year as it retires five aircraft, the national carrier said on Wednesday, part of a revamp aimed at returning to profit.

Loss-making SAA, which flies one of Africa’s largest fleets, received state funds in July to help it repay debts. It also depends on government debt guarantees of about R20 billion ($1.5 billion).

South Africa’s Treasury is considering a R13 billion bailout to keep SAA going as bankruptcy could hurt an economy already reduced to “junk” status by ratings agencies Fitch and S&P Global Ratings.

“One narrow-body aircraft has left the fleet, with four more expected to leave the fleet by December 2017,” acting chief executive Musa Zwane told a parliamentary committee.

Zwane said the impact of the reduced flights would mostly be felt among domestic passengers, although regional and international routes will also be affected.

As part of its turnaround strategy, he said the airline was making good progress in bringing down operational and aircraft maintenance costs.

However, liquidity constraints and exposure to volatile currency exchange rates remained a challenge, he said.

“So far there is a positive contribution by the initiatives that we have started and we are on the right footing,” he said.

The Treasury last month appointed Vodacom Group executive Vuyani Jarana as SAA chief executive. He is the first permanent leader at SAA for two years. 

The deputy minister of finance told Reuters there was a “strong possibility” that Jarana will take up his new role by November 1.

South Africa’s cabinet is considering selling its stake in landline provider Telkom, where government holds a 39% stake, to help raise R10 billion to cover a large part of SAA’s total R13 billion bailout.

National Treasury director-general Dondo Mogajane told reporters they were planning to bring a special appropriation bill for R10 billion to parliament within a month.

“That is the plan,” he said.

Treasury officials said discussions were continuing with lenders ahead of a September 30 deadline when debts of around R6.8 billion are due to mature.

In July, the airline was provided state funds to repay loans of about R2.3 billion to Standard Chartered.

SAA is now in talks to make an initial part-payment on R1.8 billion  owed to Citibank and help stave off a default by month-end, said Treasury director-general Dondo Mogajane.

“Currently, most of them are prepared to roll over and the issue is up to when,” Mogajane said in relation to nine other lenders owed money by SAA.

SAA chief financial officer Phumeza Nhantsi said they were negotiating to have the loans extended by at least 18 months.

($1 = R13.0415) 

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The ANC is supposed to uplift the poor. So why are they wasting tax payers money (R10 billion) on bailing out SAA whose passengers are the rich and business?

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