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Gordhan: 5 reasons behind SAA's huge losses

Jun 26 2019 22:01
Carin Smith

There are 5 reasons why South African Airways is currently in such a precarious financial position and has persistently incurred losses over the past 12 years, according to Minister of Public Enterprises Pravin Gordhan.

State capture

Mismanagement and state capture played a major role in the airline's losses, Gordhan said in Parliament on Tuesday. 

In the aftermath, there have been attempts to turn the airline around, but these have not yet materialised. Former SAA CEO Vuyani Jarana resigned at the beginning of June. According to his resignation letter to SAA board chairperson JB Magwaza, he unpacked how uncertainty about funding and slow decision making processes were delaying the airline's turnaround strategy.

The board of SAA has since appointed interim CEO Zukisa Ramasia. At the time, the SAA Pilots Association criticised her appointment and organised labour at SAA also reacted negatively to the resignation of Jarana.

Debt trap

The state-owned airline is unable to service its debt, Gordhan said. 

Jarana was appointed CEO in November 2017 and had the challenging task of bringing back the airline to financial health. At the time of his appointment, SAA had R9.2bn in debt that was maturing on November 28, 2017.

Cost structure

The cost structure is commercially unsustainable, according to Gordhan. 

Under Jarana's watch, a revised corporate plan was developed and approved by National Treasury in March 2018.

This plan required funding of R21.7bn and would see SAA break even by 2021.

Fleet

The airline has the incorrect fleet configuration, the public enterprises minister said. 

The current SAA fleet comprises some 50 aircraft, including the Airbus A319, A320, A340 and Boeing 737 airplanes, according to its website.

Red tape

SAA is hobbled by "many cumbersome approval processes", Gordhan added. 

To those who urge for SAA simply to be shut down, he said it is important to consider the thousands of jobs that would then be lost. In his view, progress has been made with route optimisation and other cost efficiencies at the airline.

"But ultimately, we need to create an airline that is 'fit for purpose' and able to compete effectively in a dynamic market and ready to negotiate with a strategic equity partner," Gordhan explained.

"We have reviewed the investment case for SAA. Based on comparisons with its peers, there is an investment case for SAA if reforms are well implemented, and if inefficiencies in its systems are eradicated."

saa  |  sona 2019  |  pravin gordhan  |  airlines
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