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Johannesburg - South African Airways (SAA) has agreed to hire a restructuring expert to help turn around the state-owned airline and meet conditions laid down by lenders to roll over debt, according to two people familiar with the matter.
Incoming CEO Vuyani Jarana met with British industry veteran Peter Davies last month and he agreed to help try to return SAA to profit, said the people, who asked not to be identified as the plans are private. Davies is a former CEO of European airlines including Air Malta and Brussels Airlines and currently runs London-based consultancy Airline Management.
"We are finalising steps that will lead to the appointment of a chief restructuring officer," SAA spokesperson Thali Thali said in emailed comments. "No announcement on the identity of the candidate can be made before we attend and resolve the outstanding issues."
Davies didn’t immediately respond to a phone call and email seeking comment.
The appointment of a strong management team is one of several conditions lenders have laid down to extend talks on loan repayments beyond Finance Minister Malusi Gigaba’s mid-term budget update in October, the people said.
One of those was a payment of R700m to Citigroup as part of R1.8bn of debt due to the US bank by the end of September, which was released by the National Treasury along with funds for working capital on Friday.
Treasury confirmed the payment of R700m rand to Citigroup and directed further questions to SAA.
Debt negotiations
A group of lenders led by Nedbank [JSE:NED] - and including FirstRand [JSE:FSR], Standard Bank [JSE:SBK], Barclays Africa [JSE:BGA] and Investec [JSE:INL] - are prepared to negotiate a refinancing of debt through March 2019, the people said. In his mid-term budget update, Gigaba is expected to announce proposals intended to make SAA break even by about that date, including details of a recapitalisation plan, they said.
Nedbank, which is leading the talks, doesn’t provide details of its banking relationships with its clients, a spokesperson said in an emailed response to questions.
SAA is one of several South African state-owned companies in need of urgent funding and the government has said it needs a fresh management approach to stay in operation.
The carrier hasn’t made a profit since 2011 and has been surviving off debt backed by state guarantees. Jarana will become the company’s first permanent CEO since 2015 when he joins from wireless carrier Vodacom [JSE:VOD] on November 1. The Treasury has considered selling part or all of its R12bn stake in phone company Telkom [JSE:TKG] to help finance a bailout.
Cutting routes
SAA said last week it would reduce flights to Port Elizabeth and East London as part of its turnaround plan. The carrier will also scale back routes to Luanda, the capital of Angola, and Kinshasa in the Democratic Republic of Congo.
The airline is also working toward repatriating as much as $1bn from Angola, Zimbabwe and Nigeria to help strengthen the balance sheet, according to the people. Money is trapped in those countries after exports collapsed leading to a shortage of hard currency.
Jarana brings private-sector experience from his time at Vodacom and Davies has been identified due to his aviation expertise, one of the people said.
Davies took over Air Malta when it was making an annual loss of €70m and made the airline profitable, according to his LinkedIn page. He also started Caribbean Airlines in Trinidad and Tobago and made that carrier profitable as well.
SAA has had seven permanent or temporary CEOs since 2010. Chairperson Duduzile Myeni, a former schoolteacher who also heads President Jacob Zuma’s charitable foundation, has been on the airline’s board since 2009 and acted as the board’s chair until her permanent appointment in 2015. Her contract was renewed for a year in September 2016.
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