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South African Airways should curb losses by securing 1.3 billion rand ($118 million) in annual savings from dropping weaker routes and accelerating plans to retire inefficient jets, according to its interim chief.
Route changes could contribute 507 million rand to earnings before interest, tax, depreciation and amortization, while restructured plane leases should save 300 million rand, Acting Chief Executive Officer Nico Bezuidenhout said today.
“It’s challenging,” Bezuidenhout said in an interview, disclosing that losses worsened in the fiscal year through March due to a weaker rand, the wider impact of the Ebola crisis and the failure to implement a savings strategy unveiled last year.
Bezuindenhout has been running Africa’s largest airline since Nov. 7, when he moved over from its discount unit Mango after Chairman Dudu Myeni ousted CEO Monwabisi Kalawe. While the blueprint for a 90-day recovery plan for SAA was handed to South Africa’s Treasury and Department of Public Enterprises on Nov. 10, details haven’t previously been made public.
Regardless of longer-term plans to upgrade the company’s wide-body fleet with new planes such as the Airbus Group NV A350 or Boeing Co. 787, SAA needs to cease flying A340-600s, which are fuel-hungry and leased on terms “as if they are in high demand,” Bezuidenhout said.
The four-engine jetliners should be replaced with more- efficient two-engine models, also on a lease basis, he said.
That might point to interest in used Boeing 777-300ERs, which would offer a similar combination of seats and range to the A340s, or possibly the A330-200, which already features in the SAA fleet, though the model carries fewer passengers.
Kalawe, now described as being on a leave of absence, said a year ago that he was seeking to upgrade the engines of the nine A340-600s to cut fuel costs while deciding between new long-haul models, which he envisaged being delivered from 2017.
Some 250 million rand of savings could be secured through the renegotiation of services contracts, while other measures might also deliver a 100 million-rand revenue boost, according Bezuindenhout. He didn’t say how the balance of the 1.3 billion- rand sum targeted would be achieved.
South Africa will seek potential buyers for an equity stake in SAA as part of a recovery plan, Minister for Public Enterprises Lynne Brown said Oct. 23. The carrier is “technically bankrupt” and surviving off state-guaranteed loans because its applications for government grants were turned down by Finance Minister Nhlanhla Nene, Brown has said.
SAA said yesterday that it stands by the appointment of Bezuidenhout as Acting CEO, citing his “proven experience, capability and track record.” It made the statement after claims that the executive, who improved the carrier’s financial performance during a previous temporary stint in the top job, had misrepresented his qualifications.
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