South Africa Airways close to debt roll-over deal with lenders

State-owned carrier seeking advisers for sale of its catering unit

A man cycles past Airbus Group NV A340, left, and A330-200 aircraft operated by South African Airways at O.R. Tambo International airport in Johannesburg, South Africa, on Tuesday, Feb. 24, 2015. South African Airways is close to a 1.25 billion-rand ($107 million) savings target after renegotiating airline leases and supply contracts, canceling two long-haul destinations and reviewing the route of Washington D.C. flights. Photographer: Waldo Swiegers/Bloomberg
Beta V.1.0 - Powered by automated translation

South African Airways (SAA) has struck an agreement in principle with lenders to roll over 9.2 billion rand (Dh2.35bn) in debt that was due at the end of March, giving the loss-making state carrier more time to implement a turnaround plan and fix its finances.

Discussions with the airline’s lenders are ongoing to extend the maturities of its debt, subject to certain conditions, Vuyani Jarana, chief executive of SAA, told reporters at the CAPA aviation summit in Dubai on Tuesday.

“It’s an ongoing process,” he said.

SAA has not made a profit since 2011 and has relied on government bailouts for survival. The ailing airline set a five-year turnaround plan to cut costs and cancel unprofitable routes. Under the turnaround plan the company is targeting a return to profitability by 2021.

That objective is subject to oil prices staying below $70 a barrel on average, Mr Jarana said.

The airline is also seeking advisers to evaluate the business case of selling the catering unit, Air Chefs, as part of plans to offload non-core assets, Mr Jarana said. The turnaround plan will also include evolving its low-cost carrier Mango into a hybrid rather than a pure low-cost airline.

“It’s a very important unit because it’s a profitable unit. If you look at the market trends in the domestic market there’s more growth in the low-cost services which makes Mango very, very critical for SAA,” he said. It added four additional aircraft into Mango this year to increase its capacity to meet this demand.

After contracting out 122 of its pilots last year to other airlines, SAA is working to contain the extent of job losses, Mr Jarana said.

“So far we’re focusing on business transformation, taking out costs in the supply chain and the big thing for us is to make sure we minimise job losses,” he said. “As against job losses, we’re looking for other instruments to soften the blow.”

The airline does not expect to slash routes this year and is seeking opportunities to grow its network particularly within Africa, Asia-Pacific and the US, he said.