Embattled national carrier South African Airways is determined to turn around major losses and address the Auditor-General’s damning findings on the airline.
This comes as SAA indefinitely suspended two officials on Monday, including its Chief Financial Officer Phumeza Nhantsi.
SAA on Tuesday said it has incurred a net loss of R5.569 billion (compared to R1.478 billion in 2015/2016) and expects that its financial situation will not be much different for FY2017/2018.
“However, a number of significant steps have already been taken as part of the turnaround strategy, with the clear aim of taking SAA to profitability in the medium-term,” SAA said, adding that the board and management are taking urgent steps to address issues raised by the Auditor-General’s office in its 2016-17 audit report.
“The board of SAA has noted and accepted the Auditor General’s report,” said CEO Vuyani Jarana. “The majority of the airline’s operations are sound, and we are building on this to ensure we break the loss-making cycle and transform the airline into a viable and sustainable entity.
“The board has developed and approved a clear strategy and five-year plan to turn the airline around, and we are working closely with the board and the shareholder to ensure we succeed.
“SAA has had many previous turnaround strategies which have not been implemented before. This time it is different: we believe the vision outlined by the board is absolutely correct, and are committed to ensuring it is put into practice.
“We need a clean break with the past and a new approach to the future, and that is precisely what we are doing. We are acting with urgency to ensure the viability and sustainability of this crucial national asset,” said Jarana.
The immediate focus of the turnaround strategy is on liquidity management, balance sheet restructuring, cost management as well as revenue optimisation, which are intended to stem the losses and drive profitability.
Key steps SAA says it has already taken include improving governance by strengthening the board and its structures; injecting R10-billion capital to improve the balance sheet; addressing the leadership vacuum by filling key executive vacancies; hiring a Chief Restructuring Officer (CRO) and implementing key market-facing initiatives aimed at stopping ongoing losses.
“Furthermore, network optimisation has been implemented on the domestic, regional and international route network to improve yields. The London route will be served by an upgraded product and reduced to a single daily service. These network changes are necessary as SAA’s route network remains under intense scrutiny with clear defined minimum profit margin target at route and network level. A change hub has been setup as command centre for implementation of the change initiatives,” SAA said.
The R10-billion capital injection from National Treasury late last year has helped restructure the balance sheet and improve SAA’s equity position. “However, it is important to note that SAA has never been properly capitalised, and any company has a defined maximum debt capacity beyond which debt becomes a burden. We need to do more and work closely with the shareholder to find lasting solutions that will materially improve SAA’s equity position,” said Jarana. “The board and shareholder are determined to build a financially sustainable airline.”