SAA revenue shortfall almost R900m year-to-date | Fin24
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SAA revenue shortfall almost R900m year-to-date

Nov 29 2017 19:59
Carin Smith

Cape Town - Although the revenue of South African Airways (SAA) has improved in the second quarter, its year-to-date revenue shortfall is still at R879m, Parliament's standing committee on finance heard on Wednesday.

About R450m of the shortfall came from the domestic market, which has been impacted by growing popularity of low-cost airlines, causing SAA's domestic losses to increase.

At the same time, the state-owned airline's operating costs were in line with budget, but maintenance costs exceeded budget by R300m, while finance costs were reduced by R141m.  
SAA's chief financial officer Phumeza Nhantsi told the committee the airline's loss for the current financial year is expected to end up being more than R4bn. A large part thereof is expected to be a loss of about R2bn resulting from a board decision to return six leased narrow-bodied aircraft to their owners. The original decision of the board was to keep these aircraft in its fleet.

Only 9 of SAA's 64 aircraft are actually owned by the airline, SAA said in its presentation.

Committee member Alf Lees (DA) said he considers it strange and even illogical for the SAA board - which he presumes to have been the previous SAA board - to have taken such a decision to return the six narrow bodied aircraft to their owners. Lees' question about who took this decision and why it was taken by the board, remained unanswered by the SAA delegation.

Committee member Floyd Shivambu (EFF) called for an indication of the costs of leasing versus buying of aircraft to be presented (in future) so that there can be "one strategy". Committee chair Yunus Carrim agreed with Shivambu, while Lees felt leasing aircraft is per se not necessarily a bad thing.

Nhantsi said SAA is in the process of improving its liquidity and will see a reduction in interest it has to pay to lenders. The reduction in interest it has to pay could end up being about R600m over the full financial year, she said.

"Our strategic implementation plan will focus on more revenue optimisation, but because of our liquidity challenges we had to take a cautious position. As we get the rest of our recapitalisation, we will reduce some of the debt."

New SAA CEO Vuyani Jarana told the committee some hard calls would have to be made at SAA, because cost optimisation has become very important.

"We want the ability to operate a strong airline. We are working closely with Treasury regarding our cost structure - including in other countries. Everyone must be on board and work together to turn the situation around," he said.

Jarana indicated that even with the latest R10bn government "capital injection" SAA received, the airline still remains under-capitalised with a negative equity position of more than R9bn. Of the R10bn an amount of R7bn will be used to repay lenders and R3bn has been used to address short term working capital challenges.

"We need to be able to borrow when we need to borrow and invest when we need to invest. The cost of capital and the cost of debt, therefore, need to be minimum and a lot of work needs to be done in this regard. We are not in a good space," concluded Jarana.

After the meeting Fin24 asked Jarana for his reaction to the announcement that independent SA aviation groups Airlink and Safair are applying to the Competition Commission for permission to merge. The SAA CEO replied that he could not comment as SAA is still "studying the process".

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saa  |  vuyani jarana  |  yunus carrim  |  transport  |  airlines  |  aviation


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