SAA chief Vuyani Jarana aims to entice lenders
New South African Airways (SAA) boss Vuyani Jarana plans to win back Standard Chartered and Citibank as lenders after they dumped the cash-strapped and debt-ridden airline earlier
Jarana, who inherited a mess when he was appointed in November, told Business Day in an interview last week that he was sure that a new turnaround plan, which he aimed to table in January, could persuade the banks to come back.
"We’ll continue to talk even with those [banks] that were fed up and pulled the plug. This is business, we are going to go back to them. Perhaps the reasons for them [pulling] the plug may have been based on them not believing in the plan. If they trust the plan, they may want to do business with us."
The government will pay over the final tranche of a R10bn in March 2018. Jarana said the airline would have R9.2bn in negative equity after March.
A consortium of lenders that stayed the course, albeit with a string of conditions attached, had rolled over their debt that was due in 2017 to March 2019, confirmed Jarana. However, "R10bn is half the story. SA needs to realise this SAA guarantee is no investment — it’s a promissory note … it doesn’t give you the ability to invest in the underlying assets.
"There has to be some way of injecting cash into SAA.
"You want to run a business that doesn’t have negative equity because what it does, it gives a bit of leverage to negotiate over suppliers and other providers of capital. Your cost of debt becomes a lot ... cheaper because they can see you’ve got a stronger balance sheet."
Jarana has been meeting lenders and CEOs of financial houses still interested in SAA.
"We are going back to them in January or February to present them with a more robust and resilient plan."
Standard Chartered refused to renew loan facilities for SAA, forcing the National Treasury in July to repay R2.2bn sourced from the National Revenue Fund. Later, the Treasury also paid US-based Citibank, which had recalled a R1.8bn loan.
In November, Finance Minister Malusi Gigaba said a strategic equity partner for SAA would be sought, but there have been no further details.
Jarana joined SAA from Vodacom after an extensive career in telecoms. The SAA board was also reconstituted, with businessman Johannes Magwaza taking over as chair after Dudu Myeni was ousted, although she told ANN7 that her term had ended.
Since Jarana’s appointment at SAA, the airline has set up a cash-conservation office to review procurement.
"There’s been a great deal of achievement in some of the key initiatives that are there, from a cost-savings point of view. However, there have also been other things that are fundamental that have not been achieved, largely because of the state of SAA," he conceded. Weekly meetings with the Treasury "keep everyone in check".
It would have been irresponsible of him to sign a pre-existing, long-term turnaround plan without stress-testing some assumptions in the plan.
Targets were now in place for cost cutting, but these had to be aligned with strategy. "The plan around savings — as it is today — I’m not comfortable to sign on it … we’re revising the total tally of savings and revenue upside," he said.
Some of the cost-containment measures being considered included flying appropriate aircraft for particular routes.
Jarana said SAA had been flying wide-body aircraft from Johannesburg to Cape Town and Durban, when these aircraft were in fact more appropriate for long-haul travel. He was also reviewing contracts including "a lot of evergreen contracts at SAA" with a view to renegotiating some.
Jarana was " waiting eagerly" for the state’s decision on the merger of SAA, South African Express (SAX) and Mango. This would plug the hole on certain routes requiring lower-gauge aircraft used by SAX.
"I’m quite confident about the prospects of SAA. I’m more confident than I was when coming in because I’ve seen things that need to be done — complex as they are — but they are not rocket science commercially.
"The other airlines are operating. Why would one airline not be successful and it’s quite simple: it’s a case of doing the right things, commercial delivery, looking at your cost base, being ruthless with efficiency … we need to give ourselves a little bit of headway to compete in the market by improving efficiencies," he said.