SAA CEO mulls cutting staff and testing the market
National airline CEO Vuyani Jarana expects an announcement 'soon' on a roadmap for the introduction of strategic equity partners
Staff rationalisation at South African Airways is a necessity and the airline has been talking consistently with trade unions on the need for SAA to reorganise itself, CEO Vuyani Jarana said in Parliament on Thursday.
However, he said the decision on rationalisation would depend on the finalisation of a clear operational structure that would determine the staff numbers required.
“Unless we address the cost base we will not be successful,” Jarana stressed during a briefing to Parliament’s finance committee on SAA’s fourth-quarter results for 2017-18.
He said the priority over the past six months was to ensure job preservation through outsourcing and contracting out some of SAA’s staff to other airlines “to soften the blow”. Jarana told the committee he had “been doing roadshows to major airlines, enticing them to actually contract our pilots so that when we grow again we can go and fetch them”.
Addressing the process of securing a strategic equity partner, Jarana stressed that time was not on the side of SAA and it would probably need to go ahead and test the market.
Discussions are taking place between Treasury and SAA board members in an oversight committee chaired by Deputy Finance Minister Mondli Gungubele. Jarana believed the government as shareholder would make pronouncements “soon” on a roadmap for the introduction of strategic equity partners.
SAA chairman Johannes Magwaza said the SAA board was “far down the line” in its readiness to engage with Treasury through the oversight committee on the different modalities that a strategic equity partner could be introduced.
The state would have to decide how much of SAA it was prepared to sell.
A question that would have to be settled is whether it was possible to sell more than 25% of state-owned enterprises to foreign players, and how this would affect the process of securing a strategic equity partner.
Gungubele told MPs the government was open to private participation in state-owned enterprises, instances of which would be individually assessed.
The oversight committee is also looking at SAA’s liquidity challenges and its need for a recapitalisation by the state to fund its turnaround strategy. SAA says it needs R21.7bn over three years — R9.2bn to repay the debt that matures in March 2019 and R12.5bn for funding its turnaround strategy, which envisages the carrier will break even in 2021.
Jarana said the oversight committee was looking at how to optimally combine shareholder capital, a strategic equity partner and debt as part of SAA’s capital structure. It is envisaged that the work of the oversight committee will be finalised by September or October 2018.
Jarana said there were two schools of thought about the introduction of a strategic equity partner into SAA. The one was to build up the airline until it was positioned for growth and attractive to investors.
The second was to acknowledge that the airline was under pressure and needed capital, and that it should go to the market to see if there was a suitor willing to go through the process of transforming and cleaning up the business. “We have to walk through the process and find the optimal way,” Jarana said.
“The danger of going too quickly is when you get no uptake — then it can be catastrophic and damaging in the long term. However, I don’t think we have the luxury of time, so we will probably go ahead and test the market based on the guidance from the shareholder.”
He said the uncertainty over SAA’s going-concern status had had a negative effect on its standing in the market. However, there were “greenshoots” emerging from the action taken to put the airline on a more sustainable footing.
These included significant improvements in gross margins compared to 2017. Average fares were also increasing, which meant that SAA would be able to pay for itself on its domestic routes, which historically was not the case.
There were also improvements on regional routes, but there had not been enough rationalisation of the international routes for the results to have come through yet.