Here’s how cash-guzzler SAA could return to profit in three years – new CEO

EDINBURGH — South African Airways has sucked vast sums out of the country’s coffers as a result of mismanagement and corruption. Former board chairperson Dudu Myeni, close friend to former president Jacob Zuma, has been blamed for much of the trouble. Instead of answering questions in Parliament about the role of SAA in state capture, Myeni pulled a sickie – but was spotted later that day enjoying an intimate late-night drink with a man at a Pretoria hotel. Others at SAA have had their snouts in the trough too. Earlier this week, SAA announced that CEO of SAA Technical (in his capacity as acting CEO of SAA), Musa Zwane and SAA CFO Phumeza Nhantsi have been suspended pending disciplinary action. Some taxpayers have questioned the wisdom of having a state airline that operates at a huge loss. Meanwhile, new CEO Vuyani Jarana reckons he can get the operation back to profitability within three years. – Jackie Cameron

By Arabile Gumede

Bloomberg – South African Airways is striving to return to profit in three years by reducing the size of the network and transferring planes to its low-cost carrier as Chief Executive Officer Vuyani Jarana embarks on a recovery plan.

A turnaround of the state-owned airline is among the more urgent priorities of newly appointed Finance Minister Nhlanhla Nene, who is seeking to avoid a repeat of the government bailout approved by his predecessor Malusi Gigaba last year. The carrier’s net loss widened more than threefold to R5.6 billion ($473 million) in fiscal 2017 and the company may not be able to operate as a going concern, South Africa’s Auditor General said last week.

South African Airways (SAA)

“We now have a clear strategy and clear path to profitability defined by the board,” said Jarana, who became SAA’s first permanent CEO in three years when he started work in November. “We are looking at a three-year window to get to a break-even point. We continue to revise the strategy as we see more opportunities.”

SAA will continue to cut or reduce loss-making routes and transfer unneeded planes to profitable low-cost carrier Mango Airlines, Jarana said. The company halved the number of flights from Johannesburg to London’s Heathrow airport last month, and in 2017 canceled or reduced the frequency of flights to African capitals including Luanda, Abuja and Kinshasa.

The airline has a fleet of more than 50 planes and flies to cities in 25 countries, according to its most recent annual report.

New Partner
Vuyani Jarana.
SAA Chief Executive Officer Vuyani Jarana

A fund-raising plan laid out by Jarana last year to sell a stake to an equity partner will have to be shelved until the balance sheet has been repaired, the CEO said. A new investor would “most likely be attracted to an SAA that’s actually dealt with its own challenges and restructured,” he said in a phone interview Monday.

In his report filed to parliament on Thursday, Auditor General Kimi Makwetu said six consecutive years of losses, a lack of working capital and maturing loans were all barriers to a return to profit. In attempting to establish SAA’s financial position, he found the company had failed to properly value assets or correctly record irregular or wasteful expenditure.

Under former Chairman Dudu Myeni, the airline became embroiled in allegations of mis-management and corruption that plagued the nine-year rule of ex-President Jacob Zuma, who was replaced by Cyril Ramaphosa last month. Myeni has been summoned to give evidence to a parliament inquiry into the misuse of state funds Tuesday, though eNCA reported that she won’t attend.

“We are busy talking to the National Treasury about how to fund the new plan,” Jarana said. “We are quite clear that the new plan is solid and we are very aggressive about implementing it.”

SAA plans to hold its annual general meeting before the end of March. A spokeswoman for the National Treasury said she couldn’t immediately comment.

SAA’s liabilities exceeded its assets by R17.8 billion at the end of March, according to the AG’s report.

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