SAA in hunt for equity partner
• Airline’s shaky financial position makes search difficult, says CEO
The jury was still out on whether South African Airways (SAA) would be able to attract a strategic equity partner, Parliament was told on Tuesday.
Briefing members of the standing committee on appropriations about SAA’s recapitalisation programme, new CEO Vuyani Jarana said it was hard to sell part of a business “when it’s on its knees”.
Jarana told MPs SAA would review the viability of its office and call centre in Miami, US. SAA has a high operating cost structure, which is seen as one of the main reasons for its financial mess.
“I don’t see how you can run a call centre in the US. Call centres are … moving to Africa … we are busy engaging. However, commercially it doesn’t make sense [for SAA to run an office in Miami],” said Jarana.
Finding an equity partner would be crucial for returning the airline to profitability.
Earlier in November, Finance Minister Malusi Gigaba said SAA was still searching for a partner. Discussions were at an early stage, he said, and the government, SAA’s sole shareholder, was still to decide what percentage of the airline an equity partner would take.
Jarana said management was looking at all available options. “We are looking at soft assets … [including] landing space. With our traffic rights and landing spots, we can get an equity partner. We are going to focus on it because we are under pressure … we have to fly for financial stability,” said Jarana.
“We have to make decisions quickly and very fast, without being reckless.”
Total recapitalisation of R10bn will be provided to SAA in 2017-18. An amount of R5.2bn has been provided, with the remaining R4.8bn to be transferred by March 31 2018.
Jarana said while SAA welcomed the cash injection, the “reality is that it’s not enough”. The airline would have to look at other options to tackle its financial woes including reviewing its cost structure and revamping its commercial strategy.
The consolidation of the state airline assets — which include Mango and South African Express — into SAA should be a key consideration, said Jarana.
Of the R10bn allocated to SAA, R7bn would be used to repay lenders and R3bn had been used for short-term working capital challenges, he said.
Jarana said reasons for SAA’s “extreme” reliance on debt included a weak capital structure and finance costs causing strain on profitability. Furthermore, the overreliance on leasing aircraft — only nine of 64 aircraft are owned by SAA — had to be dealt with.
SAA’s lack of profitability had weakened its negotiating power with suppliers. Greater domestic and international competition, which was driving margins down, was also contributing to SAA’s woes, Jarana said.
FINDING AN EQUITY PARTNER WILL BE CRUCIAL FOR RETURNING THE AIRLINE TO PROFITABILITY