South African Airways (SAA) will revive a plan to seek an equity partner that is able to provide cash and operational savings to help turn around the state airline, according to its new CEO.
A strategic investor would ideally come from within the aviation industry, CEO Vuyani Jarana said in an interview at Bloomberg’s Johannesburg office on Monday. That would enable unprofitable SAA to share costs, improve customer service and gain 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 bail-out. It is also a revival of a plan raised by former finance minister Pravin Gordhan in his budget speech in February 2016, although the formation of a new board to lead the search was finalised only last month. Jarana, who started on November 1, is SAA’s first permanent CEO for more than two years.
Swiss Air bought a 20% 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 and Singapore Airlines.
One of SAA’s main strengths was a 55% 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 meet with Finance Minister Malusi Gigaba on Tuesday to discuss plans for the airline, according to the National Treasury. The CEO was also holding talks with a group of domestic lenders about R6bn in outstanding loans, Jarana said.
The CEO, a former executive at mobile-network operator Vodacom, was hired for his business expertise rather than aviation knowledge and will spend the early months of his tenure reviewing all the company’s costs, including routes, aeroplane leases and supply contracts. That process should be finalised by February and would be influenced solely by commercial considerations and not political pressure, he said.
SAA has this year already reduced flights to Port Elizabeth and East London and scaled back routes to Luanda, the capital of Angola, and Kinshasa in the Democratic Republic of Congo.
Working alongside Jarana will be new chief restructuring officer Peter Davies, whose credentials include a turnaround of Air Malta and the start up of Caribbean Airlines. JB Magwaza was named as chairman in place of Dudu Myeni, who heads the charitable foundation of President Jacob Zuma.
Customer experience, internet connectivity and in-flight entertainment would be increasingly important to ensure travellers choose SAA as their preferred carrier, the CEO said. The company needed to capitalise on a growing market through its significant network of flights in Africa, he said.
SAA competes mainly with Ethiopia Airlines Enterprise and Kenya Airways in sub-Saharan Africa, while Persian Gulf giants Etihad Aviation Group, Emirates Airline and Qatar Airways operate several routes from major African cities to Middle East hubs and on to Asia or Europe.
"If we want to seriously compete against other big players in Africa and Middle Eastern carriers, we need to refresh the product," Jarana said.