SAA turnaround ‘won’t be derailed by Jarana’s departure’

SAA turnaround ‘won’t be derailed by Jarana’s departure’

SAA CEO Vuyani Jarana (pictured) has not committed to a deadline for finding a private equity partner. Picture: Moneyweb

The board says the state-owned airline’s return to profitability by 2021/22 is still on track – but government will have to come to the party again.

The turnaround strategy intended to get South Africa’s embattled national carrier onto a path of sustainability and profitability is not under threat, according to the SAA board. Its statement aims to quell the fears of the public and the market following the dramatic departure of chief executive Vuyani Jarana over a week ago.

Jarana’s resignation letter, which was leaked to the media, painted a picture of a sorry state of affairs at the airline.

He bemoaned the lack of support from government in tackling mounting debt levels, bureaucratic hurdles getting in the way of key decisions and a lack of trust between the state and the executive as some of the chief reasons responsible for government “systematically undermining” the successful implementation of the strategy.

Strategy ‘bearing fruit’

However, addressing the media on Friday, Martin Kingston, non-executive director and Rothschild & Co South Africa CEO, said “there is absolutely nothing that has changed by the departure of Mr Jarana”.

“The long-term turnaround strategy which was approved by the board and by the shareholder remains on track and is beginning to bear fruit in a number of respects,” he added.

In a brief update, Kingston said the airline is already starting to see the benefits of fundamentally changing the routes the airline operates. In addition, the airline is at an advanced stage of deciding on how to optimise its fleet for the routes it operates.

Kingston acknowledged that costs are “unacceptably” high and said this can, in part, be blamed on the fact that the carrier’s procurement procedures are not fit for purpose. “This is being reviewed with the shareholder,” he said.

Kingston laments the impact of corruption and malfeasance, which he says has been a “fundamental tax” on the airline that has not been dealt with adequately in the past. He indicated that a subcommittee has been created to “go back in time” and address all instances of corruption in order to take action against those involved.

Regarding the balance sheet of the loss-making carrier, Kingston says SAA cannot continue if it is not appropriately capitalised.

“That means there will need to be an injection by the shareholder who is acutely aware of it but they have many demands on a limited purse,” he said.

SAA’s financial needs

The airline is in talks with international and domestic lenders to obtain R4 billion in funding to run its operations for the current financial year.

Although running at a loss, Kingston said that, with appropriate funding, the board still anticipates that the airline will be making a profit in 2021/2022 as laid out in its corporate plan, which is the basis of the turnaround strategy.

On top of the R4 billion, SAA is in discussions with its lenders to extend and restructure its maturing long-term loans of R9.2 billion as well as a R3.5 billion loan that is due in July.

SAA will succeed in these endeavours only if lenders are confident that there will be support from National Treasury.

However, the airline was excluded from government’s bailout plans in February’s budget by finance minister Tito Mboweni, who previously glibly stated that the carrier was unlikely to succeed and should thus be closed down.

Kingston said there have been extensive and ongoing discussions with Treasury and the Department of Public Enterprises, and that both institutions are fully aware of the need for short-term financing and a sustainable balance sheet to underpin the turnaround strategy.

“We are all very well aware of the fact that if we don’t put SAA on stable financial footing we will continue to have the kind of challenges we have experienced over the past several years,” said Kingston.

SAA has not made a profit since 2011 – and at the beginning of 2018 Jarana said the carrier had been confronted with at least three incidents where it was almost unable to pay salaries.

CEO search

SAA is now looking for a permanent chief executive and the search will be open to domestic as well as global applicants to increase the chances of finding someone with the appropriate skills and expertise to carry out the implementation of the long-term turnaround strategy,

In the interim, general manager of operations Zuks Ramasia is acting as the head of the airline.

Non-executive director Thandeka Mgoduso said the work Jarana had been leading on the strategy would not “collapse”.

She said the turnaround strategy not only predated his term, which began in 2017, but that it was also not a “one man” show and the team that worked with him is still at SAA.

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