SAA back to sustainable profitability in 2019-20
Consultancy firm Seabury, which has been appointed to evaluate the South African Airways (SAA) turnaround strategy, has concluded that the financially troubled, state-owned airline will only return to a positive operating cash flow position by April 2018, and to sustainable profitability in the 2019-20 financial year.
However, this will depend on the successful implementation of the turnaround strategy. SAA is forecast to make a loss of R4.8bn for 2016-17.
"Cost and revenue initiatives amounting to about R6.8bn over a five-year period have been identified; R2.88bn of these are expected to be realised in the 2017-18 financial year," SAA executives told members of Parliament’s standing committee on finance on Wednesday.
Seabury has drafted a five-year turnaround plan which will be considered by the SAA board at the end of May. Part of Seabury’s brief is to quantify the capital SAA needs to sustain itself and be financially viable in the long term.
According to Seabury, the successful implementation of the turnaround plan is dependent on SAA continuing to maintain its going-concern status, which is supported by a state guarantee of R19bn, and critical positions being filled. Other prerequisites include the injection of capital to which Treasury has committed itself, the management of maturing debt, and committed and enabled employees.
SAA is to table its five-year business plan with Treasury by June.
SAA chief financial officer Phumeza Nhantsi told MPs that the airline has been engaging with lenders to secure funding on the basis of the latest R4.7bn guarantee by the state, and to extend loans maturing in the short term. She said the key priority is to enhance revenue so that SAA can cover its operating costs in the long term. Currently, it is spending R250m in cash each month. Nhatshi said SAA had managed to save about R700m in 2016-17.
According to SAA, the airline had a revenue shortfall of R5bn in 2016-17 compared to its budgeted revenue figure. This is a key reason for its projected loss of R4.8bn for 2016-17. The previous figure of R4.5bn cited as the airline’s loss for last year was for an 11-month period.
The budgeted loss of R4.8bn for the full year compares with the budgeted full year loss of R1.7bn, forecast at the beginning of the year.
A further factor contributing to the higher-than-budgeted loss was a R912m loss on the balance sheet due, according to SAA, to "currency volatility impacting the ‘mark-to-mark’ value of foreign assets and liabilities as per the accounting standards".
SAA chairman Dudu Myeni and board members also appeared before the committee to report on the progress of implementing the long-term turnaround strategy.