Jarana: Nigerian Route Very Important to Us
The new Chief Executive Officer of South Africa Airways, Vuyani Jarana said flight operation to Nigeria is very critical to the airline. He disclosed how the continent’s major carrier is currently restructuring to become profitable and financially indepen
How adequate are the funds provided for you to restructure the airline?
In August last year, the commercial banks had stopped providing credit to South Africa Airways (SAA), notwithstanding the government’s guarantee, largely because they think there has to be a plan to turn the airline around. They wanted to know that there is a date in the future when the airline will be able to pay and be profitable. In that context, one of the critical things is dealing with working capital management. If you don’t have access to credit facility, invariably, you have to share the capital cost to support your business until you get the right construct where you can start having access to credit.
Since I joined the airline in November, 2018, the big area of focus for us was for us to work with lenders and get them interested in SAA, get them to expand loans and we managed to get them to do that by November, within my first month. What was important was to get them interested in continuing to invest in SAA as partners. We have had to rework the strategy, rework the plan, complete the corporate plan and present it to the shareholders. They are quite comfortable that our partners in the plan are not overly ambitious but are quite pragmatic and focused.
SAA will get funding that is going to support the company from January, the beginning of the year till September or October. So, this is supporting working capital requirement and that is the investment the government is putting in as a shareholder. Part of it is to continue to support working capital programme until September or October, 2018.
What we have done is to set up a joint committee with government; with the Equity Finance Minister and that committee is focused on finalising the capital structure, including the funding mechanisms for the airline. So, the committee, by September must have done its work and finished, then we can start dealing with funding. So, in terms of our plan moving forward, is that today we have 9.2 billion Rand of debts that are historic. The historic debts need to be addressed as part of the capital structure. We have also indicated clearly that the turnaround plan in 2021, where SAA will break even and start delivering results, needs a working capital funding of about 12.5billion Rand over the next three years, so that is the working capital funding, keeping in mind that we want to grow revenues as well as take out costs.
So, turning around the airline is almost a 24 to 36 months work programme that you need to do in that process and you are starting to get the alignment of both revenue and cost. The five billion Rand that was issued is part of the plan but effectively what we need is to address the 9.2 billion Rand and the 12.5 billion Rand going forward. So, we a combined figure of 21.7 billion Rand.
This is what will take SAA moving forward, keeping in mind that it is premised on a case where we are saying that no company is debt free. The lenders have said to us that they want a plan to profitability, which we have put in place. Secondly, they have said that they want a plan to debt reduction. Which means the current debt profile of SAA is a bit high, so we need to address it and that is what we are working on. This is very clear plan. We have started taking decisions in terms of executing them.
So, many people also say SAA had put up many strategies and what is going to be different now?
The difference now is that we are executing our plans. We have created a change hub, which is a nerve centre for execution. There are milestones, step by step. We have optimised the revenues; we are taking out costs and talking about restructuring. This is where we are now. We talk about the fit for growth plan. Fitness of growth means strengthening your base so that you can build capacity to grow and that is what is top in mind for us.
This year marks 20 years of South Africa Airways operation into Nigeria. How profitable is the Nigerian route to the operations of the airline?
The Nigerian route is very important to us as it gives us good load factors, we have got consistent services, and we have the right mix of profile of customers in terms of business class and economy class. So, it is one of the profitable routes that we have in SAA that is why we want to continue to support it and grow it and make sure we improve the customer experience in the route to be able to defend our market position. We do have market leadership in Nigeria, therefore we need to protect it and make sure we listen more to customers and making sure that our partners continue to support us. So, this is one of the routes that we have to maintain and grow.
In specific terms, what changes are you bringing in to ensure the airline return to the era of profit?
If you look at the restructuring, it is about four issues. First, you have to look at the balance sheet restructuring, the funding structure of SAA, getting the right construct of capital structure. Secondly, you have to look at the network and the market aspect of the business, making sure we serve the right market with the appropriate tools, so that there is no mismatch in the way you address the market, otherwise you make losses. We have partners which give us different types to portfolios and tools to actually address the market.
We have to also look at the ratios, it is about costs, about taking out costs, you need to look at productivity ratios, weather its pilot or all of us, and we have to look at everything. Most importantly is how we simplify the organisational processes, we need to bring a lot more simplicity in building a strong commercial organisation that will be focusing on profitability as well as customer experience. So, the five key things are customer experience, balance sheet restructuring, revenue management in terms of the network design as well as how we address the market. This is a fit for growth commercial organisation, while we continue to hold on to our safety records. In each of these areas, there are work streams that are focusing on making sure we do the right things, and that being managed through the change hub. So, we are not leaving this to chance. We watch this every week.
In this turnaround plan, how many aircrafts will you be acquiring?
We have built a plan based on the current fleet profile. We are also aware that it is unthinkable that we will stay as we are into the future. But of course, to do this, you need to apply a lot of science and analysis. So, we are busy doing the analysis of the network, which talks to a fleet strategy that we are going to unleash. That analysis will come out in about September. That will tell us what kind of fleet profile we should have, bearing in mind that you have to reengineer the strategy, as we need to do something differently. That will be communicated in the second half of the year. We need to fly aircraft, more than what we are flying today, which is a good thing. We will share the future plan once we have a sense of what the possibilities are.
Are there plans to return to Abuja route which was suspended few years back and how many frequencies will you be operating on this route, if you eventually return?
What we did was to suspend operations in Abuja in the gauge of the aircraft that we are using. We are bringing in our franchise partners in the same way that we are bringing them in the central African routes to be able to address this with the right products and the right economics. So, that piece of work is being done. It is between two authorities to approve the start off the route. So, it is in our agenda to support that through our partners, in terms of the franchise.
South Africa Airways buoys South Africa tourism. In monetary terms, what is the contribution of the airline to the development of tourism in the country?
There are number of drivers for economic value addition for SAA, not only in South Africa but proudly in the continent because by far for many decades, we have facilitated the intra-Africa travel by far and strengthened the economies through bi-lateral trade, bringing about ease of travel. We know there are still lots of work that the continent must do in terms of air travel because some of the travel between African countries, still go through outside the continent. The thinking within government is that even though SAA plays a critical role in promoting tourism, it ought to have economic value addition, that has to be done in a profitable context and I think we can’t fault that thinking because we can deliver both.
To the extent that there will be developmental mandate that may not fit a commercial enterprise, that could be dealt with as an isolated matter but I don’t think the challenge SAA faces today can be solely ascribed to developing that mandate, I think we could achieve both profitability as well as making sure we still promote tourism. Part of the things South Africa needs to look at is the alignment of the state aviation policy to make sure that it is balanced and begin to promote the local travel market and also promote intra-Africa travel market.
Describe the West African market in the eyes of SAA?
SAA is a catalyst to economic development. SAA facilitates trade, tourism and investment in the different economies. What we have decided to do is to look at how we are able to serve other West African market by our operations. Before the restriction, we were on-line to about nine countries in West Africa and Central Africa, starting all the way from the Democratic Republic of Congo, to Senegal, Dakar, Abidjan, Accra, Cotonou, Brazzaville, Kinshasa, Lagos and so on. We used to be on-line to most of these cities but because of the restructuring and the fact that some of the routes were not entirely profitable, we are not able to sustain them. With the restructuring, we have had to strategise on the central Africa and have pulled away from Brazzaville, Cotonou and Duala for now.
Once we are able to get the right type of equipment to service these markets, we will go into it. We have also consolidated on our operations by trying to make the ease of travel better for the West African travellers. So, we are partnering with regional carriers like Africa World Airlines to be able to feed our operations either in Lagos or Accra. So, we are strengthening our operations in Accra. We have flights originating from Accra to Washington and that has proven to be a very sustainable operation. We also have flights originating out of Dakar to Washington as well.
We have a lot of expansion plan for Dakar (Senegal), Accra (Ghana) and Nigeria. Once this comes into fusion, we will let you know. SAA will like to ease travel in West Africa because it is very difficult to travel within West Africa. We cannot do it on our own because of the location of our hub but we will do it by partnering with local and regional carriers to be able to do that. We have effectively done it in Accra and it is working well for us. We are not leaving Nigeria behind, we have a lot of plans for Nigeria and we will start implementing the plans for Nigeria soon. Nigeria is key. A population of almost 180 million people is not a market that you joke around with and we have seen it in operations between Lagos and Johannesburg to our South African and continental networks, that it is a very good and viable market.