Business
South African Airways requires bailout to help with struggles
South African Airways’ (SAA) executives are caught between their continental ambition and lack of cash. Technically insolvent, SAA is reliant on a R5 billion ($443 million) government guarantee to operate while discussions about a cash injection continue with the treasury.
The size of the bailout required has not been disclosed, but an announcement is expected at the end of March. Monwabisi Kalawe, who took over as chief executive in June 2013 following a purge of board members and executives in the latter half of 2012, says the board is investigating several countries in West Africa as a potential host as it tries to compete with Middle Eastern carriers.
“They have been successful in absorbing air traffic to the Middle East and then distributing it. This is a risk for an airline situated at the bottom of Africa. Setting up a hub in West Africa is our attempt to mitigate that risk,” Kalawe says. SAA has shortlisted Nigeria, Ghana and Senegal for its hub. It expects it will take a year or longer to finalize negotiations, but this will require an additional capital injection from the treasury.
Smoother transit
SAA is also lobbying to scrap transit visas, which would make Johannesburg more attractive to passengers travelling to other parts of the continent. “What we want to see is SAA being the flight of choice on the continent,” Kalawe says. Most pressing, however, is stabilising SAA’s finances. Its results for the financial year ended March 2013 were delayed by five months as talks continued over the bailout.
Despite passenger numbers growing by 8% and the savings realized as a result of its ‘Gaining Altitude’ turnaround strategy, a 13% decline in the rand against the United States dollar contributed about R700 million to its after-tax loss of R1.2 billion.
The rand has declined by more than 30% since then, raising fears about the losses it will suffer in the current financial year. “The impact of the weakening rand is severe,” says Wolf Meyer, SAA’s chief financial officer. Increasing its technical operations on the continent will grow dollar-based revenue and act as a natural hedge, Meyer explains.
Even without the challenge of a weakening rand, turning around the airline and reaching the break-even point by 2017/2018, as envisioned by the turnaround plan, will be no easy feat. Gaining Altitude is the ninth turnaround plan in 13 years. The company has not made detailed targets from the latest plan public, so it is impossible to gauge whether the plan is working.
