February 18, 2019 / 10:19 AM / 7 months ago

UPDATE 2-South African Airways in talks to roll over $650 mln of debt

* Secures 3.5 bln rand funding from banks to last until June

* Will need 4 billion rand from June for working capital

* On track to turn profitable by 2021 fiscal year

* In talks with govt to sell majority stake in Air Chefs (Recasts with debt rollover talks)

By Tiisetso Motsoeneng and Olivia Kumwenda-Mtambo

JOHANNESBURG, Feb 18 (Reuters) - South Africa’s state-owned airline is in talks with lenders about rolling over $650 million of debt due next month, its finance chief said on Monday, a move that would give the struggling company breathing space to push through a turnaround plan.

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

SAA, which has not made a profit since 2011, 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.

Chief Financial Officer Deon 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 by between four and five years.

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

“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),” Fredericks told Reuters on the sidelines of a briefing. “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 from lenders last week amounting to 3.5 billion rand. From June, the company would need a further 4 billion rand, which should carry it to the end of the 2021 fiscal year, in March 2022, he said. 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 led by former mobile phone firm Vodacom executive Vuyani Jarana room to focus on executing the turnaround plan.

At 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, Jarana said. Each unit will have its own management, rather than decisions being centralised, in a bid to make the airline more agile and increase accountability.

“We are evolving into an operating model of three business units,” Jarana told the briefing. “We want to build a new SAA, fit for the future, place the right people in the right job.”

Jarana, who is working with British aviation turnaround expert Peter Davies, said his strategy has pencilled in a return to profitability in the 2021 financial year.

That forecast, however, is largely dependent on the oil price staying at or below $75 a barrel, and the airline accessing funds to fix its capital structure, he said. His team was ready to make quick decisions should the price of oil swing unfavourably, such as by stepping up efficiencies, he added.

As part of the plan, the company is talks with the government about selling a majority stake in its in-flight catering unit, Air Chefs, Jarana said, adding that no decision had been made. “We’ve looked at Air Chefs. The simple thing is that if you want milk you don’t always have to own a cow,” he said.

$1 = 14.1251 rand Reporting by Olivia Kumwenda-Mtambo and Tiisetso Motsoeneng; Editing by Susan Fenton

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