National flag carrier South African Airways (SAA) is in an advanced stage of renegotiating its deal with European airliner manufacturer Airbus to acquire A320 single-aisle (or narrow body) aircraft. The aim is to replace ten of the aircraft still on order with five A330 wide-body airliners. This was recently revealed by SAA acting CEO Nico Bezuidenhout. He was addressing the media at a function at the SAA head office, at OR Tambo International Airport, east of Johannesburg.
SAA originally ordered 15 Airbus A320s during 2002. This order was meant to have been cancelled in 2004, but it turned out that Transnet, then SAA’s shareholder, failed to follow the legal processes required to cancel the deal, leaving the contract in force, with the result that Airbus continued to build the aircraft. Only in 2008 did SAA find out that the contract was still legally valid and in force when Airbus asked the airline to accept delivery of the first A320.
Further, the airline discovered that the contract required it to pay a premium over the basic price of the aircraft, which required SAA to take an impairment on its accounts for each brand-new airliner. This impairment has varied from R5-million to R10-million on the aircraft that were delivered.
Bezuidenhout pointed out that the airline had to renegotiate the deal. Airbus was willing to do so, if SAA increased the order to twenty A320s. This was agreed. So far, ten of the aircraft have been delivered. “It’s a great aircraft,” he said. “But it’s not been great financially [for SAA].”
Now, against the background of the current 90 Day Action Plan and the Long-Term Turnaround Strategy, and with changes in SAA’s route network and market priorities, the airline has sought to restructure the deal again. “We’ve engaged with Airbus on this,” he stated. “We’ve not concluded the transaction, but it’s likely we’ll not take delivery of the last ten [A320s] but get five A330s . . . the premium we paid disappears.”
SAA already operates six A330-200 airliners. “They are the only fuel-efficient wide bodies that we have,” he pointed out (although the drop in the fuel price has significantly improved the operating economics of the airline’s four-engined Airbus A340s, with the result that their replacement is no longer urgent). “The A330 works for our network, especially in Africa.” (SAA is planning to increase its operations to and from the rest of Africa.)
The new aircraft will be leased, either from a specialist leasing company or direct from Airbus itself. They will be a mixture of A330-200s and A330-300s (currently, SAA operates only the –200 version) and deliveries will start in late 2016 and continue through 2017.
Separately, the airline is busy renegotiating the leases on its eight A340-600 wide-body airliners. The renegotiations include extensions of the leases. The company was going to extend these leases because its liquidity problems meant that it would not have been able to meet the lease termination obligations.
The renegotiations will, however, also reduce the cost to the airline. So far, three of the lease renegotiations and extensions have been approved by the shareholder. These will save the airline R112-million a year. The remaining five extended and renegotiated leases still have to be approved by government, but Bezuidenhout expects this approval will be given later this year. These will save at least another R150-million a year.
None of the lease extensions are for more than six years. He noted that, even if SAA ordered new wide-body aircraft now, regardless of manufacturer, it would not be able to take delivery of them until 2020/21.