State-owned airline SA Airways (SAA) has secured the R3.5bn it requires to continue financing working capital requirements until June, acting CFO Deon Fredericks said on Monday.

Negotiations are also underway with banks to extend the payment terms of R9.2bn bank debt that is due at the end of March, he said.

The cash-strapped airline requested funding of R21.7bn from the government last year to recapitalise its balance sheet and provide working capital to help implement its three-year turnaround plan, which was approved by the shareholder.  Of this, R5bn was provided by government in the medium-term budget last year.

A further R4bn is required for working capital in the 2019/2020 financial year, Fredericks said.

All SAA’s debt of R12.7bn is currently guaranteed by the government. Ideally, a company of SAA’s size should have debt of around R4bn to R5bn, highlighting the need for SAA’s balance sheet to be recapitalised to improve its ability to compete.

“The key is to get certainty,” Fredericks said. Without certainty, banks remain reluctant to provide long-term debt, which would be cheaper than the short-term financing SAA currently relies on.

CEO Vuyani Jarana said the airline has made significant progress in implementing its turnaround strategy, which sees the airline reaching breakeven by the 2021 financial year. In the six months to September 2018, it beat its budgeted targets on revenue, operating costs and reported a significantly smaller net loss than expected.

Part of its turnaround efforts include the scrapping of one Johannesburg-Heathrow flight, which allowed the route to earn a gross profit for the first time in a decade, Jarana said.

A new supply chain policy has already realised cost savings to the tune of R299m, while improvements have also been made at SAA Technical and on domestic, regional and other international routes.

However, various challenges remain. Suppliers have cut down on payment terms for SAA, putting pressure on cash flow, while its precarious cash position has also limited the airline’s ability to take out hedges on foreign exchange transactions and fuel purchases, a major cost driver.

Jarana also announced on Monday that the airline would be reorganised into three business units as part of a revamp plan.

The domestic, regional and international business units will have their own management, rather than have decisions being centralised, in a bid to make the airline more agile and increase accountability.

With Reuters