S African Airways seeks investor for turnaround

Bloomberg

South African Airways (SAA) will revive a plan to seek an equity partner that’s able to provide cash and operational savings to help turn around the state airline, according to its new chief executive officer.
A strategic investor would ideally come from within the aviation industry, CEO Vuyani Jarana, 47, said in an interview. That will enable unprofitable SAA to share costs, improve customer service and receive a capital injection, he said.
“You don’t just want a pure investor such as private equity,” said Jarana. “With a strong equity partner that has operations elsewhere, you are able to leverage from each other’s capabilities.”
A successful search for a new investor would solve the most pressing challenge facing Jarana—that of putting SAA on a sure financial footing without need of a further government bailout. It’s also a revival of a plan raised by former Finance Minister Pravin Gordhan in February 2016, though the formation of a new board to lead the search was only finalised last month. Jarana is SAA’s first permanent CEO for more than two years.
While the airline hasn’t started the process of searching for a partner, there have been expressions of interest, Finance Minister Malusi Gigaba told reporters at SAA’s headquarters in Johannesburg on Tuesday. In a separate fund-raising exercise, he’s also asked the carrier to compile a list of assets that could be sold, the minister said.
Swiss Air bought a 20 percent stake in SAA in 1999, only for the South African government to buy it back after the Swiss carrier went bankrupt. SAA is also part of the Star Alliance, a global code-sharing network that includes Deutsche Lufthansa AG and Singapore Airlines.
One of SAA’s main strengths is a 55 percent share of the South African market, which also includes contributions from low-cost carrier Mango and SA Express, Jarana said. A merger of the three airlines would help to secure a strong partner, he said, while also contributing to the cost-cutting plan.
“SA Express is still being run as a separate entity by the government with a separate board,” Jarana said. “It has a big strategic role to play.”
Jarana is due to hold talks with a group of domestic lenders about $423 million in outstanding loans, according to Jarana. That could enable auditors to sign off on the company’s latest financial statements, after which SAA can hold an annual general meeting. The AGM will take place before January 28, Gigaba said.
The CEO, a former executive at mobile-network operator Vodacom Group Ltd., was hired for his business expertise rather than aviation knowledge and will spend the early months of his tenure reviewing all SAA’s costs including routes, airplane leases and supply contracts.
SAA has this year already reduced flights to the South African cities of Port Elizabeth and East London and scaled back routes to Luanda, the capital of Angola, and Kinshasa in the Democratic Republic of Congo.