South African Airways (SAA) went on a charm offensive on Friday, assuring the market that the bankrupt state-owned airline is stable, hours after it emerged that its outgoing CEO Vuyani Jarana is in a tug-of-war with the board over circumstances of his shocking resignation.
For one thing, it has replaced Jarana, the business-savvy CEO who quit on Thursday after only serving at SAA for 18 months, with Zuks Ramasia on an acting basis — making her the ninth CEO of the national carrier in 13 years.
Ramasia’s appointment is true to SAA’s hallmark and long history of appointing CEOs on an acting basis while it extends the search for a permanent chief – not only domestically but also globally.
SAA looked internally to replace Jarana, as Ramasia is currently SAA’s general manager for operations and has been described by SAA board member Thandeka Mgoduso as a “professional with extensive background” as she brings more than 25 years of aviation experience.
Ramasia walks into a fraught SAA environment in which tensions between the board, Jarana and the shareholder representative – the Department of Public Enterprises minister Pravin Gordhan – have come to a head over the funding of the finally distressed airline.
Jarana’s resignation, in which he cited slow decision-making, bureaucracy and lack of financial support from the government for the airline to successfully mount a turnaround strategy for the airline, once again raised concerns about its going concern status.
The Board of SAA wants to know how Vuyani Jarana’s resignation letter appeared in the public domain on Sunday, 2 June 2019. They suspect he leaked the letter.
SAA has a total long-term debt load of R21.7-billion. In the interim, it has a R3.5-billion bridging loan that matures in July 2019 and R9.2-billion worth of long-term loans that will come up for repayment later this year.
Martin Kingston, who is heading up SAA’s long-term turnaround strategy, says the airline is in discussions with banks to extend the soon-to-mature loans so that the board can “navigate a difficult financial set of circumstances”.
This means that SAA won’t pay off R12.7-billion (R3.5-billion bridging loan and R9.2-billion of long-term debt) of imminently maturing debt, but it will extend the repayment terms – further kicking the can down the road.
However, Kingston says banks will only want to extend the payment duration of the loan if SAA can guarantee further financial support from the shareholder. This means that the airline wants more bailouts from the government and taxpayers.
If SAA secures more financial support from the government as a guarantee, this will unlock an additional funding of R4-billion from three local and international lenders for SAA’s working capital.
“We are currently operating at a loss hence why we asked for R4-billion in additional support,” says Kingston, who refused to disclose the name of the three lenders SAA has approached.
But there is little sign that the government wants to give SAA more money that will push up the tally of bailouts it has received since 1999 to more than R40-billion.
Finance Minister Tito Mboweni recently said, through Twitter, that the airline should be closed down. He also left SAA out of his budget speech in February 2019 in favour of a massive bailout for Eskom.
Kingston remains confident that SAA can break even in the 2020-21 financial year and pencil in a profit in the 2021-22 financial. This will be about 10 years since SAA made a profit.
Asked about whether SAA is considering converting some of the bank loans into equity for its lenders, Kingston it’s a decision that the government will have to make. DM