Sydney – South African Airways (SAA) has reached the point where some hard decisions have to be made, CEO Vuyani Jarana told Fin24 on Monday.
“SAA is now getting to the phase where it is starting to tackle the tough issues,” he told Fin24 at the 74th annual general meeting of the International Air Transport Association (IATA) in Sydney.
These include issues like procurement spend and getting costs down. It also involves bringing in the right skills needed.
“We are cleaning up the supply chains and cost base issues, so now we have to deal with the restructure soon,” he said.
“The current operating base is not sustainable for the airline. We have to take hard decisions regarding people and the supply chain. Job losses will be inevitable, even though my priority is about job preservation by finding ways to find opportunities for our excess pilots and cabin crew to soften the impact. I have a heart. It is not just about cutting jobs. If we grow again, we will need them again, so we have to be sensitive and conscious about it.”
Jarana said there is now a “date in the future” where SAA will break even.
“We have now stress tested and refined our strategy for SAA and all we ask for is to be given three years, space to operate and money,” he said.
“We have defined the funding requirements to take us there. There is R9.2bn of existing debt owed to banks – debt I inherited when I took over as CEO. Then we also need R12.5bn of working capital to take SAA to the breakeven point. So, in total we need R21.7bn to fund the existing debt and to fund the working capital needed to get to the breakeven point.”
According to Jarana, SAA is working with National Treasury as its shareholder to find the optimal capital structure for the airline in terms of the mix of debt, equity and strategic partner investment.
“Either SAA must get a direct cash injection from our shareholder (government) or we have to find private sector partnering investment. We also have to bring the bank debt down and our plan deals with that, although it makes certain assumptions, for instance, about the oil price,” said Jarana.
He said SAA has already rebalanced its capacity in the domestic market between itself as a full service airline and the low-cost airline Mango in its stable. Since the bigger demand is for low-cost travel, SAA has moved four of its aircraft to Mango, resulting in improved margins for both Mango and SAA in this regard. Load factors with SAA and Mango were also improved.
“So, our strategy is holding well. We also made decisions regarding Central African routes which were not profitable and consolidated our London route by removing our second frequency,” he said.
* Fin24 is a guest of IATA at its AGM.
* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.