State-owned national airline South African Airways (SAA) is projecting a loss of R4bn for the financial year to end-March 2018, chief financial officer Phumeza Nhantsi said on Wednesday.

This was much worse than the R2.8bn loss projected in the five-year turnaround plan. The loss is mainly due to the costs associated with exiting from leasing five narrow-bodied aircraft.

By end-September 2017, the loss for the year to date was R2.1bn, up from the projected R1.8bn. Revenue came in at R14.5bn, lower than the budged R15.4bn.

In her briefing to Parliament’s standing committee of finance, Nhantsi said revenue shortfall in the year to end-September was R879m, about R450m of which was from the domestic market where SAA was facing stiff competition from low-cost carriers.

Operating costs were in line with the budget while maintenance costs had exceeded the budget by R300m and finance costs — related to the recapitalisation — had been reduced by R141m. An unanticipated amount of R300m had to be paid for the exit from the aforementioned leases.

Of the R10bn recapitalisation by the state, R7.6bn would be used to repay loans, thereby reducing the interest bill. Nhantsi said the recapitalisation would allow SAA to reduce its finance costs by about R600m for a full a year.

She said SAA had managed to reschedule loans that expired last week until end-March and, therefore, the airline would pass the going-concern test required for the Auditor-General to finalise the financial statements. The SAA annual general meeting could, therefore, go ahead on January 19.

In terms of the conditions attached by the government to the recapitalisation, SAA is required to submit a board-approved, five-year turnaround plan to Treasury, as well as identify which non-core assets could possibly be sold.

The airline will also have to submit an action plan to address the findings from all independent forensic investigations by the end of December. The plan will have to be implemented by the board by end-March 2018. In addition, the airline will have to provide Treasury with a framework for the commencement and cessation of routes by end-January.

Newly appointed CEO Vuyani Jarana said even with a R10bn recapitalisation, SAA would remain under-capitalised with a negative equity position of about R9bn by the end of the year. By the end of April 2018, SAA forecasts it will have outstanding debt of R9.74bn.

Jarana said the biggest challenges facing the airline were its capital structure and its commercial strategy. If these could be fixed, SAA would be able to get back on its feet. He stressed the need for stability to be restored to SAA, which has a new board. A chief restructuring officer Peter Davis — a known aviation restructuring expert — has been employed to work closely with Jarana.

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