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SAA to continue to post losses until 2021 despite new turnaround promise

SAA chairperson Dudu Myeni (centre) flanked by Finance Minister Pravin (left) and Deputy Finance Minister Mcebisi Jonas (right)

Photo by Duane Daws

SAA chairperson Dudu Myeni and deputy chairperson Tryphosa Ramano

Photo by Duane Daws

Phumeza Nhantsi

Photo by Duane Daws

Acting CEO Musa Zwane and Dudu Myeni

28th October 2016

By: Terence Creamer

Creamer Media Editor

  

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Embattled national carrier South African Airways (SAA) has indicated that it is likely to remain lossmaking until 2021, but that the scale of its losses should continue to decline. The State-owned group reported a loss of R1.5-billion in 2015/16, following a loss of R5.6-billion in the previous year.

Speaking on Friday at a post-annual general meeting (AGM) briefing at Airways Park, which is located alongside OR Tambo International Airport, controversial SAA chairperson Dudu Myeni insisted that the turnaround of the airline, as well as its return to financial sustainability, was the main priority for the new board and the executive team.

Without providing much detail on the “marching orders” outlined by SAA’s shareholder Minister, Pravin Gordhan, at the AGM and an earlier board meeting, which was also attended by Deputy Finance Minister Mcebisi Jonas, Myeni nevertheless did indicate that the turnaround had been identified as the “apex” priority and that all other matters, including transformation, would play a secondary role.

The media had earlier been allowed into the sixth-floor boardroom, which saw Myeni opening the AGM flanked by Gordhan on her right and Jonas on her left. However, neither the Minister nor his deputy participated in the subsequent media briefing, which took place hours later in the third-floor auditorium.

At the start of the AGM, Gordhan stressed the importance of providing a transparent account to the public of the “state of affairs” at the national carrier, which, besides making serial losses, had also failed to finalise financial statements for two years prior to receiving a further “going concern guarantee” of R4.7-billion from the National Treasury in September.

In total, government had, over the years, issued a R19.1-billion guarantee facility to SAA and currently had a R14.3-billion exposure against the facility. Without the guarantees, the airline would be technically insolvent.

Deputy chairperson Tryphosa Ramano, who is part of the new board appointed earlier in the year to oversee the turnaround, noted that SAA currently had a negative equity position of R10-billion – a reality that would “guide” the subcommittee of the board set up to work on solutions, which would be presented for shareholder approval in the coming months.

A strategy review would take place in the first week of December to finalise the short-, medium- and long-term components of the turnaround strategy, which could include the injection of a strategic equity partner and the realignment of all government's airline assets. A merger between SAA and State-owned South African Express had been mooted previously, but no final decisions have been made on either capital or corporate restructuring.

Myeni indicated that the turnaround would be “informed by the shareholder’s presentation to the board and some marching orders that we received”. She confirmed, though, that the strategy would definitely contain a route review, as well as plans for costs containment and boosting staff morale, with 27 pilots having recently resigned from the airline.

The process also required the appointment of a permanent CEO and CFO, posts currently filled in acting capacities by Musa Zwane and Phumeza Nhantsi respectively. The positions would be advertised “soon” and the appointments should be made in early 2017.

Nhantsi confirmed that the trend of narrowing losses had continued into the current 2016/17 financial year, but indicated that a breakeven position was still some way off.

“The corporate plan that we submitted to our shareholder reflected that the company will break even, or post a small profit, in year 2021. The losses going forward will be improving, but we will post them until 2021”.

She added that, during 2016/17, SAA had loans of R4.3-billion maturing, but that it had initiated a process to refinance these loans and that it was confident on having sufficient working capital for the year as a whole.

Edited by Creamer Media Reporter

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