South African Airways start discussions to roll over $650 million of debt

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To help cash-strapped South African Airways push through a turnaround plan, the Chief Finance Officer, Deon Fredericks said the state-owned airline is in talks with lenders about rolling over $650 million of debt due next month.

The South African President Cyril Ramaphosa has made a point of supporting ailing state firms like South African Airways (SAA), which survive on government handouts. However, the extent of their financial difficulties has meant slow progress.

South African Airways has not made profit since 2011. The company has drawn up a five-year turnaround plan that includes slashing costs and cancelling unprofitable routes as it grapples with cost increases that outstrip revenue growth.

Fredericks said the airline was in talks with lenders about potentially extending the maturity of the 9.2 billion rand ($651 million) debt due at the end of March to four and five years.

The lenders are however unlikely to commit until after South Africa’s annual national budget, which is expected to unveil fresh guarantees and bailouts for state-owned companies including SAA and state power utility Eskom.

Speaking on the sidelines of a briefing, Fredericks told Reuters that “we’re busy with banks now, discussing. But it will (be) dependent on the budget if it’s a long-term or short-term (rollover). If there’s sufficient (guarantees) in the budget to give them comfort, then they will be happy to restructure for a long term”.

Fredericks also said the airline had enough money to last until June after securing financing amounting to 3.5 billion rand from lenders last week.

He noted that from June, the airline would need a further 4 billion rand, which should carry it to the end of the 2021 fiscal year, in March 2022. The airline expects to turn profitable in fiscal 2021 with no need for government bailouts.

Rolling over the debt for the long term and securing fresh capital would give the executive team room to focus on executing the turnaround plan.

Former mobile phone firm Vodacom executive Vuyani Jarana, who is leading the executive team, said the heart of the strategy is the reorganisation of SAA into three business units focusing on the domestic market, the rest of Africa and the international market.

In a bid to make the airline more agile and increase accountability, Jurana noted that each unit will have its own management, rather than decisions being centralised.

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