SAA is considering selling off assets after banks have refused to lend it any more money – and its debt ballooned to R15bn more than its assets at the end of July.
 
A senior SAA executive told City Press this week that the airline’s finances are in tatters and the Auditor-General has raised serious concerns about its viability.
 
SAA, which is technically bankrupt, will therefore not present its 2017/18 financials to Parliament by the end of this month, as required by law.
 
Senior SAA staff and a confidential report, presented at the company’s board strategy session 10 days ago, reveal that the airline’s management is now looking at a number of aggressive cost-cutting measures, including selling off its catering arm, Air Chefs, and outsourcing or selling SAA Cargo.
 
A top official at the national carrier told City Press that in the meantime, the company would look to government for more bailouts because banks have “hardened their attitudes” and are “continuing to refuse” to lend it more money, despite Treasury guarantees.
 
SAA has about R19.1bn worth of government guarantees.
 
In September last year, Treasury gave SAA a R3bn cash bailout to avoid defaulting on a Citibank loan.
 
The report, a turnaround strategy document which SAA chief executive Vuyani Jarana presented to the board last week, reveals that:
 
- On March 31, the last day of the 2017/18 financial year, SAA had R13bn in assets and R26bn worth of debt. But by July 31, the company’s assets remained at R13bn while its liabilities burgeoned to R28bn;
 
- The airline will record a R6bn loss by the end of the current financial year;
 
- SAA Technical (Saat), which has suffered significant losses to “fraud and theft”, is bleeding money, losing up to R560m a year in penalties from poor turnaround times for aircraft repairs and maintenance;
 
- SAA’s monthly costs, ranging between R350m and R450m, are significantly higher than its revenue and are not coming down fast enough; and
 
- SAA needs to reduce costs by 5.2% and increase revenue by the same amount to record a R1bn improvement by the end of the current financial year.
 
Although the report did not mention anyone by name, it slated the previous board, led by former chairperson Dudu Myeni, for leaving SAA with rampant corruption, low pilot productivity, a significantly weak balance sheet, liquidity problems, loss of confidence from suppliers, a lack of critical skills and fragmented IT systems.
 
“Unfortunately, SAA has had acting people in most senior positions. The board was also fractured and there was a lot of instability. The problem here is not even the market, but within, with people stealing and committing fraud,” another executive said.
 
“But SAA is absolutely fixable and Jarana is moving things in the right direction.”
 
Selling assets
 
Although no decision has been made to sell some of SAA’s business units, the report shows that the matter was discussed at the board meeting. Jarana, who has led SAA for almost a year, asked board members whether the SAA Group needed all the businesses “given the relative sizes and impact on financials”.
 
A senior SAA official said: “We continue to review our portfolio and we continue to engage with the shareholder. There is no holy cow and everything is under consideration. There is no pressure to sell anything, but does SAA really need Air Chefs?
 
“We are not in the business of selling food and it is not our core business. We just need ready-made food at the cheapest cost available, without having to worry about management and staffing issues.”
 
Regarding SAA Cargo, the document said while the division generated more than R2.1bn last year and made a R387m profit, it had major problems – including antiquated warehousing facilities, rigid pricing models and extensive dependency on aircraft that ferry passengers and cargo at the same time.
 
Jarana asked the board to consider a full cargo division or to outsource the business completely.
 
The document shows that Jarana is inclined towards outsourcing the cargo division to a private third party.
 
Banks won't finance SAA
 
A senior SAA executive said government will have to continue funding the airline until 2021, when its balance sheet becomes self-sustainable.
 
“Banks have walked away from us despite our guarantees from Treasury. It is true that they don’t want to fund us. They will only fund us once they see a path to debt reduction,” he said.
 
“If you are a shareholder of a company and you are unable to source funds from banks, what do you do? You have to step in and rescue the situation, to the extent that you believe the turnaround strategy is worth the paper it is written on.”
 
The report shows that the airline will need R21.7bn between now and 2021, when it is expected to return to profitability. The R21.7bn is made up of government bailouts amounting to R12.5bn, and loans of R9.2bn.
 
In addition, it shows that in the current financial year, Jarana’s executive management is projecting a 5.2% loss which, according to projections, will be reduced to 1.9% in the 2019/20 fiscal year before returning to profitability, with a projected 1% profit, in 2021.
 
In September last year, City Press reported that Nedbank told a meeting – attended by Treasury’s director-general, Dondo Mogajane, and SAA’s former chief financial officer, Phumeza Nhantsi – that the bank would not lend money to SAA as long as Myeni was still on the board.
 
Nedbank was not the first bank to withdraw support for SAA. In July last year, Standard Chartered revoked its R2.207bn loan, and a month later, Citibank pulled the plug on a R1.8bn loan.
 
However, another SAA executive said Treasury and the department of public enterprises were in discussion with the banks to try to convince them to change their minds not only regarding the funding of SAA, but of other state-owned entities as well.
 
“But when it comes to SAA, a funding plan must be created. You cannot just rely on debt for such a big company. The problem with SAA is that it doesn’t sell as a brand. A brand must sell.”
 
The document shows that Jarana’s corporate plan was beginning to bear fruit. The plan, approved early this year, has as its focus revenue stimulation, flight schedule reorientation, organisational design, supply chain transformation and the overhauling of Saat’s logistics and operations. The report shows that during the first quarter of this year, SAA’s revenue improved.
 
Jarana refused to comment about the plan. However, another official said this had been brought about by the realisation of a “dramatic shift to low-cost airlines, and the executive management decided to shift four aircraft from SAA to Mango”.
 
In April, SAA also reduced the number of flights to London’s Heathrow from two each day to one. SAA also introduced new aircraft on this route which caused SAA to post a profit on the route for the first time in more than a decade.
 
A revamp of the airline’s flight schedule will involve rescheduling flights to Germany, Hong Kong, Perth and Buenos Aires to improve connectivity for passengers, capture more traffic and extract more flying hours on each aircraft, the document shows.
 
SAA, another executive said, was also looking at establishing new routes from West Africa to the US and London, and from Johannesburg to the Asia-Pacific region.
 
“We need to grow and we want to use the same aircraft to fly more,” he said. We are focusing on route profitability. The plan is to grow and become a commercially viable airline. The corporate plan has identified a number of risks and mitigation strategies.”
 
He blamed government for SAA’s woes, saying: “Airlines need stability. Most of the chief executives of most of the big airlines have been there for more than a decade. The mind of the shareholder is reflected on the board.”
 
SAA spokesperson Tlali Tlali said the airline was unable to comment because it had not seen 
the strategy document. “We will soon address the media on the progress we have made, milestones, and the path that lies ahead in transforming SAA ... We are confident that the airline is moving in the right trajectory and we are making steady progress.”
 
 
Source: City Express
In President Cyril Ramaphosa's statement on the Economic Stimulus and Recovery Plan for South Africa, he highlighted the visa changes approved by the cabinet on Wednesday.
 
One of the key economic reforms mentioned in the president's speech was the country's visa regime, focusing on the amendments that will be made to regulations on travel of minors to South Africa, the list of countries requiring visas to enter South Africa, an e-visas pilot that will be implemented, and visa requirements for highly skilled foreigners that will also be revised.
 
"These measures have the potential to boost tourism and make business travel a lot more conducive. Tourism continues to be a great job creator and through these measures we are confident that many more tourists will visit South Africa," says Ramaphosa.
 
The full details of the visa reforms and waivers have yet to be made available but will be officially gazetted in October - ahead of the busy December holiday period.
 
Expected visa changes:
Cabinet received a joint report from the Ministers of Home Affairs and Tourism - Malusi Gigaba and Derek Hanekom - which reiterate the visa-related reforms that will make it easier for tourists, business people and academia to visit South Africa.
 
The biggest issue is the hoops foreign tourists have to jump through when travelling with minors and obtaining unabridged birth certificates, and changes to this regulation will also be included in the reforms, the state has confirmed. 
 
There are also negotiations on visa waivers and relaxation of visa requirements from certain countries which are being finalised, and further details will be announced later this week.
 
This is expected to include China and India, as part of high-level agreements between the countries and South Africa that was announced in July during the BRICS summit. 
 
While the details of the Chinese visa agreement is not confirmed, Hanekom did mention that one of the options being considered was a “multiple entry Visa” that would be valid for five years and offer tourists up to 90 days in the country. 
 
South Africa is also rolling out e-visas soon, set to be a gradual roll-out starting with "Phase 1, Release 1, for applications for temporary residence visas, adjudication of temporary residence visas, applications for waivers, notifications to the applicant via email and biometrics captured at the Mission."
 
The ePermit will be piloted at one Mission or local office in the last quarter of the next financial year by 31 March 2019. This is to ensure system stability. Once stable, more offices locally and abroad can then be gradually brought online, says the DHA
 
This is sure to make travel to South Africa much simpler and less complicated once it is up and running.
 
 
News24

South Africa has promised another 5 billion rand ($400 million) capital injection to help its struggling state airline meet urgent financial obligations, the CEO of South African Airways (SAA) said.

SAA has not generated a profit since 2011 and has already received state guarantees totalling nearly 20 billion rand. It needs the money to help pay debts and prop up the business as it implements a turnaround plan.

The promise of more government cash comes after SAA Chief Executive Vuyani Jarana told parliament in April that the firm needed the capital injection “now”.

“Government has committed to inject another 5 billion rand into SAA. Part of that 5 billion rand we will repay some of the creditors, suppliers, then the balance will support us for working capital until around October/November,” Jarana told Reuters in an interview.

The Treasury said it would follow its normal budgetary process, which entails seeking cabinet approval.

“The outcome of this process is expected to be finalised in time for the 2018 MTBPS (Medium Term Budget Policy Statement),” the Treasury said.

The MTBPS is usually presented to parliament in October.

Jarana said that while waiting for the funds, the company would negotiate for some breathing space with lenders. 

“If Treasury needs a certain period of time to do this, lets say up to September, between now and then, we are negotiating with lenders to give us a bridging facility on the back of that commitment,” he said.

SAA is regularly cited by ratings agencies as a drain on the government purse, but the Treasury is hopeful that new executive leadership led by Jarana, a former executive at telecoms company Vodacom, would return the airline to profitability. The government has said that SAA needs an equity partner to pump money into the company to address its liquidity crisis and to help with the implementation of a turnaround plan.

The airline was looking at several measures to cut costs and Jurana said reducing the current workforce of about 10,000 people was “inevitable”.

“Whether it’s pilots, cabin crew, administration, we are going to rationalise the workforce. It’s an unavoidable thing. We have been talking to trade unions about how we work together,” Jarana said.

“The first priority for me is job preservation, how do you find alternative jobs for people as a starting point before you go into the hard issues of retrenchments.”

Jarana said the company hopes to break even in three years time and “there onwards, everything else equal, it will be able to start paying for its own operations in terms of positive cash flows.”

 

(Reuters)

South African Airways needs R5 billion. NOW.

That is what the national carrier’s new CEO Vuyani Jarana told Parliament’s Standing Committee on Public Accounts (Scopa) on April 24.

The R5 billion is in addition to the R10 billion it got from the fiscus in the previous financial year to restore its status as a going concern.

And that is nowhere near the end of it. Not even close.

According to deputy finance minister Mondli Gungubele SAA needs at least R20 billion in order to break even by 2021. That is R9.2 billion to repay debt that matures in March next year and another R12 billion to address its “negative equity position”.

To give a sense of scale, it cost about R27 billion to construct the Gautrain system. And Comair’s market capitalisation is R3 billion. R21 billion is equal to the allocation in the 2018/19 Mpumalanga provincial budget for education and amounts to 43% of the total provincial budget. At an operational level SAA loses money on each and every domestic and most international routes. In the first nine months of 2017/18 its loss was 71% above budget at R3.7 billion. Operating costs increased. Revenue and passenger numbers declined.

Expenses exceed income by R370 million per month.

To be profitable and compete with its peers, it needs new aircraft. It cannot buy new aircraft, because nobody would lend it money on the basis of its weak balance sheet. Jarana in fact called it a “catch 22”.

Against this background trade union Solidarity is planning to apply to the High Court to place SAA in business rescue. Head of Solidarity Research Institute Connie Mulder told Moneyweb the trade union will file its papers on May 15 and has decided on this course of action in an effort to prevent SAA from being liquidated.

Solidarity believes SAA can still be saved and with it, the jobs of a few hundred of its members.

Free Market Foundation executive director Leon Louw differs sharply. He says the only viable options are liquidation or privatisation. It is too late to “rescue” SAA, Louw says. “Bailing out SAA is financially reckless and irresponsible. The scale of the amount of money required is so gargantuan that it can never be fixed and it will certainly never be a going concern able to compete in the world of modern aviation,” Louw says.

SAA’s troubles are nothing new. In 2015 its own acting CEO Thuli Mpshe and legal counsel Ursula Fikelepi advised the SAA board that the group is financially distressed, trading under insolvent circumstances and therefore trading recklessly. The board should apply for business rescue or liquidation, they stated.

Moneyweb has seen a board resolution dating back even further, to September 19 2014 and signed by seven of the eleven board members, that SAA would proceed with business rescue proceedings unless government committed to providing a going concern guarantee within a week.

Transport economist Dr Joachim Vermooten points out that the court would only grant Solidarity’s application if it can show that there is a reasonable prospect of rescuing the group.

It is very late in the day for SAA, Vermooten says. Whether the court can be convinced, remains to be seen. The Auditor-General has stated that it is not a going concern. Vermooten further points out that over and above the required amounts provided to parliament, no number has yet been put to the turnaround plan.

A proper restructuring would require additional funds for SAA to buy out onerous agreements and employment contracts.

So far, the plans are totally unrealistic, he says. And even if the plan were realistic, it would have to be funded.

Vermooten says it will be much more efficient to wind down SAA in its current form and start a new, focused airline, free of all the legacy contracts, over-staffing, inefficiencies and culture of reliance on the shareholder.

This has been done before, he says.

When state-owned Swiss Air landed itself in trouble through over-expansion the Swiss government refrained from bailing it out and allowed it to be liquidated. It subsequently bought Cross Air and successfully converted it into Swiss International, an airline with a limited mandate that was later acquired by Lufthansa.

In a similar example the Belgian government decided against bailing out struggling Sabena Air. The provincial government in Brussels instructed Brussels Airline to service selected sustainable routes. This new airline traded profitably and was also later bought by Lufthansa.

Vermooten says rather than scaling down existing SAA operations, government should start a new airline that does not necessarily need to be government-owned in the long run. Such an airline, if it reflects the values of the South African nation, could still serve as a national carrier, Vermooten says.

He says government should carefully consider what it is it needs from the national carrier and only focus on that. Sell low-cost SAA subsidiary Mango, split SAA Technical into a separate business and consider listing it and sell Air Chefs, he says. When Scopa met the SAA leadership last week, Scopa chairman Themba Godi listened to all the plans to address the multiple problems at SAA. New policies, new staff, new inventory management systems, new IT systems….

Godi remarked that it sounds as if the theme is building a whole new airline.

Perhaps that is exactly what they should be doing.

 

Source: Read more on Moneyweb

South African Airways has identified Vodacom Group Ltd. executive Vuyani Jarana as the leading candidate to become the struggling state-owned carrier’s first permanent chief executive officer since November 2015, according to three people familiar with the matter.

The debt-laden airline hasn’t made a profit since 2011 and is in talks with banks about repaying or refinancing 8.9 billion rand ($685 million) of loans due at the end of the week. The carrier needs an experienced executive from the private sector to turn it around, said one of the people, who asked not to be named because the information isn’t public.

Jarana, 46, has been head of Vodacom’s enterprise division since 2012 and was previously chief operating officer of the Johannesburg-based wireless carrier. He is the preferred choice of a number of board members appointed to SAA by the National Treasury last year, one of the people said. Chairwoman Dudu Myeni, who also heads President Jacob Zuma’s charitable foundation, has a different candidate in mind, the person said.

Jarana declined to comment.

The identity of SAA’s new CEO “is currently under consideration by the shareholder,” spokesman Tlali Tlali said by email, referring to the National Treasury. “The shareholder department may decide to table the name of the recommended candidate to cabinet for final approval. We have to wait until all these processes have been finalized before we could know and announce the CEO designate.”

Cabinet Approval

Jarana hasn’t been offered a job by SAA and is focused on delivering Vodacom’s business strategy, a spokesman for Vodacom said in an emailed response to questions. Treasury spokeswoman Yolisa Tyantsi couldn’t immediately comment when contacted by phone.

After the board identifies a candidate the name will to be presented to Finance Minister Malusi Gigaba, who will seek cabinet approval for the appointment, the second person said. Only then can an offer be made to the candidate, adding that the process could take until the end of July. The Sunday Times reported last week that Myeni attempted to halt an SAA board meeting aimed at approving Jarana’s nomination, as she doesn’t approve of the candidate.

SAA has been run on an acting basis by Chief Technical Officer Musa Zwane since 2015. He is the seventh permanent or temporary CEO of the airline since 2010. The leadership vacuum is one of many challenges to have beset the airline, which said June 20 it has made “significant headway” toward a five-year plan aimed at returning the company to profit.

On Tuesday, SAA and the National Treasury said they are in talks with lenders about settling 2.3 billion rand of 8.9 billion rand in loans due at the end of this week after one of the banks refused to ease the debt’s terms. The airline has been relying on government debt guarantees in order to remain solvent.

Vodacom, 65 percent owned by Vodafone Group Plc, is the market leader in South Africa with 37 million subscribers in the country. It also has customers in Tanzania, Mozambique and the Democratic Republic of Congo.

 

Credit: Bloomberg

South Africa's Treasury is considering a 13 billion rand ($972 million) bailout state airline SAA to keep the company going as it battles a mounting cash crunch, Finance Minister Malusi Gigaba said on Friday.

"We are in discussions about that and at the medium term budget statement in October I will make the necessary announcement," Gigaba told Johannesburg's Talk Radio 702. The Treasury said on Thursday it had appointed Vodacom Group executive Vuyani Jarana as SAA chief executive. Jarana becomes the first permanent chief executive in over two years.

 

- Reuters

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