Looking up: New SAA CEO Vuyani Jarana says the biggest challenges facing the airline are its capital structure and commercial strategy. If these could be fixed, SAA would be able to get back on its feet, he believes. Picture: SUPPLIED
Looking up: New SAA CEO Vuyani Jarana says the biggest challenges facing the airline are its capital structure and commercial strategy. If these could be fixed, SAA would be able to get back on its feet, he believes. Picture: SUPPLIED

South African Airways (SAA) chairman Johannes Magwaza has committed the board to coming up with a credible strategy to lift the airline out of its quagmire though he warned that it would go down before it rose up again.

The challenge, he said in a briefing to the finance committee on Wednesday, would be to limit the bleeding while going down and to try to make this period as short as possible.

Magwaza’s comments followed the announcement by SAA chief financial officer Phumeza Nhantsi that the airline was projecting a loss of R4bn for the 2018 financial year.

This was much worse than the R2.8bn loss projected in the five-year turnaround plan, mainly because of the costs associated with the airline’s exit from the leasing of five narrow-bodied aircraft.

By end-September the loss for the year to date was R2.1bn, up from the R1.8bn projected.

Revenue came in at R14.5bn, lower than the R15.4bn that had been budgeted.

Magwaza said it was urgent that the lack of expertise at the airline be tackled for a culture of performance to be inculcated in the organisation and for decision making to be expedited. He promised zero tolerance towards corruption.

New CEO Vuyani Jarana told MPs that there was a sense of new beginnings among SAA staff, who were committed to making the company work.

The biggest challenges facing the airline, Jarana said, were its capital structure and its commercial strategy.

If these challenges could be fixed, SAA would be able to get back on its feet.

Committee chairman Yunus Carrim said that he was encouraged by the SAA briefing and that the new team had brought a "breath of fresh air".

Even the sceptical deputy finance spokesman of the DA, Alf Lees, said he was hopeful about the future of SAA but it was crucial that its team be allowed to run the national carrier as a commercial enterprise without outside interference.

In her report on finances, Nhantsi said the 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.

Operating costs were in line with 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 lease of the five narrow-bodied aircraft.

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 year.

Nhantsi said SAA had managed to reschedule loans that expired last week until end-March and the airline would pass the going-concern test required for the auditor-general to finalise its 2016-17 financial statements.

The SAA annual general meeting could therefore go ahead on January 19.

ensorl@businesslive.co.za

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