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Funders are talking to SAA again – Jarana

Turnaround on track, but R4bn needed for 2019/20.

South African Airways has started negotiating with lenders to extend its R9.2 billion in loans that mature on March 31.

The airline hopes the progress it has made with its long-term plan to turn the struggling company around will be enough to convince lenders to extend the loans by four to five years, chief financial officer Deon Fredericks told Moneyweb on Monday at a media roundtable.

This is ‘old debt’ that lenders earlier converted to short-term debt due to concerns about the continued existence of the airline, he said.

SAA CEO Vuyani Jarana, speaking at the same roundtable, said funders have started talking to SAA again and the airline succeeded in securing R3.5 billion in funding last week.

SAA previously told government that it needs R21.7 billion in funding to keep the airline afloat and to manage it back to break-even by 2020/21. It anticipates being profitable thereafter.

SAA was allocated R5 billion in the medium-term budget policy statement in October and currently has enough cash to operate until around June. However, it needs a further R4 billion for working capital to survive 2019/20, Fredericks said.

Finance minister Tito Mboweni is expected to give clarity on further allocations to SAA in his budget speech on Wednesday.

SAA’s finance cost of R1.3 billion per annum could be reduced drastically should government proceed with the recapitalisation, he said.

Results held back

Jarana said in terms of the FY2019/23 Corporate Plan, which sets out the turnaround strategy, the airline will show a R5.2 billion loss in 2018/19 and reduce this to R1.9 billion in 2019/20. He acknowledged that the financial results for 2017/18 are being held back by going-concern issues, saying the report should be finalised after March.

Jarana pointed out that the turnaround strategy is based on certain assumptions, such as oil price and exchange rate expectations, adding that it is for SAA’s management team to navigate variances in this regard while executing the plan.

He said by September 2018 SAA revenues were 5% above projections while costs incurred were 2% below budget. The net loss improved by 35% compared to the budget, and the group had a tight grip on cash flow.

The airline has done a lot of work to optimise its routes, improving its network profitability by 42% compared to the same time last year.

SAA began work on its new organisational design late last year and hopes to finalise it by the end of March, whereafter it will start populating the new structure. The airline will consist of three business units – international, regional and domestic – each with its own executive, Jarana said.

Read: SAA to reorganise in turnaround drive

Functions such as finance, human resources and supply chain will follow a shared-services approach.

Subsidiaries Air Chefs and SAA Technical are also under scrutiny.

New majority stakeholder for Air Chefs?

Jarana indicated that the sale of a majority stake in Air Chefs might be on the cards, with an international partner in mind to extend the food business beyond the borders of South Africa.

He said the maintenance schedule of SAA Technical (SAAT) was disrupted by the earlier-than-anticipated withdrawal of five of SAA’s aircraft.

When aircraft leases come to an end, the lessee must ensure that the aircraft complies with the stipulated return specifications, which could for example include certain seat configurations and painting the aircraft. SAAT had to accommodate this work in its maintenance schedule, which led to some disruption and delays in returning aircraft after maintenance. This also impacted on the airline’s international performance.

Jarana says SAAT has now been stabilised, but that SAA is still determining its exact positioning in the market.

Transport economist Dr Joachim Vermooten, who also attended the roundtable, said that while SAA’s general approach and many small actions should contribute to better financial results, the absence of any big-ticket items that could wipe out the multi-billion rand gap between revenue and costs is concerning.

He added that government should give clarity about the extent and pace at which it plans to recapitalise SAA. If government is not prepared to give the necessary support, SAA should go back to the drawing board, he says.

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Split it into 3. One third for Zuma and Duddo, one third for the Gupta family, and the last third for whoever feels left out of not having had their share from the trough or the gravy train. Then SAA is done once and for all, and the taxpayer no longer forks out cash to throw into a bottomless pit. The public can then fly a choice of airlines that are run and operated properly and safely by people who know more about business than they do about feeding time at the trough.

If you borrow money to SAA, the Tax payer will always have to pay.

With SAA they will one day repossess our cars, furniture and houses.

Use the PIC money (State pension money).

It is widely accepted that money is LENT by the lender (and borrowed by the borrower).

Funders are talking yes and saying 2 things-
1. You must be joking or
2 Pay back the money.

Noise….Lenders will require interest rate which compensates for risk taken in lending to a bankrupt SOE.

I would like to know who these lenders are…

Any investor with a significant lack of IQ.

The numbers are misleading as the operational slight improvements do not account for the underutilization of aircraft and fixed costs not being recovered.
Shrinking the routes is less utilization unless aircraft are sold or leases cancelled.
Splitting SAA into three is rearranging chairs on the flight deck and hoping the plane won’t crash. It will take focus off key operational matters and have management jockeying around for new positions and ownership of resources. I am so sceptical of reorganizing as a turn around strategy- same for Eskom where the restructure proposed has been around at least from the 1990’s – at best the structure changes may bear results in the intermediate future. I would not invest in a strategy that is structure change. More money down the drain.
Maybe a bankable solution is to take the best of the fleet and service the profitable routes and hand back surplus/ aged fleet to lessors and say they need to take it on the chin for future business with SA. Other countries have done it. Put new SAA into new SOC and liquidate SAA. That is a big strategy. Our credit ratings are shot anyway with Eskom.
Then there is the question of accountability. Why has Dudu Myeni not been arrested- well new CRO is conflicted as his wife was Bosasa Director when Dudu was being enriched.

You have to be a certifiable brain dead and financially illiterate idijit to even contemplate feeding the endless destruction of capital !!!

Name these lenders so I can remove them from my share portfolio!

I want nothing to do with losers

How many homes can you build with the R4bn it needs to fund losses in 2019/20. It is a national disgrace to even contemplate wasting more money to save face. SAA has proven to be entirely replaceable – Tito should follow through on his comments last year and close it now.

The world has been warned about zombies but yet we stand by and allow these fake soulless bodies to exist.

SAA, Eskom and the Water & Sanitation Dept are Zombies who just consume consume and consume.

What is still baffling me from the anc / government is to still try and keep the SAA afloat at the cost of the taxpayer. It probably had a right to exist 20 years ago in the boycott days of south africa – but those days are something of the past and many airways are available to choose from. Why try and keep something that does not generate enough money to just break even alive when it is an actual unnecessary entity???? – for an anc minister to see a SAA plan in New York and to be proud about it while it is actually an outdated aeroplane????

SAA announces: “we want to get the 17-year old court case behind us, pay R1050 million rand + interest and continue with our business” what business?? – business run at a loss at the cost of the taxpayer. – wonder where the R1050 million rand will come from??

The wasted money could be spent much better on essential schools, hospitals etc than on an actual stillborn to try and get it alive and well – under the current government’s management quality levels and ability it will not happen in the next 100 years.

Same for Eskom – its days are quickly running out due to pathetic management – if one can actually call it management at all.

“The wasted money could be spent much better on essential schools, hospitals etc”

Screw poor people, I want business class.

You miss the point completely johannes!! Where else could our honourable MP,s fly free in Business class tgether with Family and friends ?? Maybe simply renaming SAA as ANC Airways would help. Have not for 20 yrs & will not ever fly SAA or its Mini me Mango again , on Principle !!

must admit: i have not even thought about the flying parasites, but just in honest business terms which is becoming a scarcity in south africa whenever / wherever the government / anc gets involved in.

The lenders are not bothered, all they will do is charge a hefty interest rate to mitigate risk but at the end of the day they will get their monies back – taxpayers will be paying back those loans period

The party that put SAA and all the other SOE’s in this position of being bankrupt are to blame and the investors do not see anyone being fired and they do not see the wage bill go down.

Mmmm… split SAA up into 3. Where is cost cutting? this will mean 2 extra CEO’s 2 extra boards extra perks, cars cell phones you name it.

I see more jobs for pals on the way. Labour unions are gonna love this, bigger ransom value.

No successful airline flying today is State owned – as far as I know. They are all trading as public companies with governments having a sizable stake in the investment.
The only hope for SAA is to become a private listed entity operating as the major carrier for Southern Africa ( including .Namibia, Zimbabwe, Malawi, Mozambique,Zambia and possibly Mauritius)
Unfortunately the government can’t think along these lines as SAA is a cash cow for the cadres and the connected. So nothing will change. Good luck to whomever takes this on….they will be sending good money after bad!

I wonder if Jarana has finished reading the ‘Airline Industry 101’?I’m sure the funders are talking to SAA because they (SAA) need funding and that’s what funders do. But I can guaranteed you the interest rates they’re talking are very different!

“Funders” or “Donators”???

And, also splitting SAA into (the magical?) three parts…

There was a time in my youth that I built countless plastic aircraft model kits: yes, when you assemble the (1) wings, to the (2) fuselage, and (3) attach the tail-piece, you have a complete aeroplane 😉

It does NOT get displayed in 3 separate parts.

…well, perhaps only if you want to create an off-plan ‘aircraft crash scene’ with debris *lol*

End of comments.

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