South African Airways considered the scrapping of champagne as part of a 1.3 billion rand ($113 million) cost-saving plan that also included route changes and firing pilots.
First-class passengers could be offered the country’s own sparkling wine, known as Methode Cap Classique, instead of champagne to help save about 20 million rand ($1.7 million) a year, according to an internal presentation seen by Bloomberg News. The proposals made in the document have been confirmed as genuine by Nico Bezuidenhout, the state-owned company’s acting chief executive officer. Other suggestions included a reduction in flights to London, the scrapping of a Beijing-Johannesburg route, and the sale of businesses including food provider Air Chefs.
“The business is chronically under-capitalized and government have indicated that they are not going to recapitalize SAA,” the Johannesburg-based airline said in a presentation dated November 2014. An aging fleet, competition from carriers including Emirates and a weakening rand have all contributed to a funding shortfall, it said.
SAA is surviving off state-guaranteed loans and has presented a 90-day rescue strategy to the government, which has refused applications for a bailout. The Johannesburg-based carrier is seeking an equity partner to help financially and strategically, and Gulf airline Etihad Airways has the option of buying a stake, Bezuidenhout said Dec. 9.
The company lost more than 2.6 billion rand in the 2013-14 financial year, Johannesburg’s Sunday Times newspaper reported today, citing a copy of the company’s annual report, which is yet to be released publicly.
The sale of a stake would be the first significant sale of a state asset by the South African government since 2003.
One proposal is to move a London flight to Abu Dhabi to help reduce an annual loss of 300 million rand on the U.K. route and take advantage of rising demand for Gulf destinations, the presentation shows. Flights to Beijing, which is its biggest loss-making route, could be canceled and a route to Toronto started instead, the document shows. SAA said last week it would start a new Abu Dhabi route on March 29 in partnership with Etihad.
The majority of proposals come from an earlier strategy delivered to the government in 2013, according to Bezuidenhout, who distanced himself from a plan to reduce the number of flights to London and said the company can only reduce its interest payments by taking on an equity partner.
“The other initiatives are contained in the strategy delivered when I previously was acting CEO and I cannot distance myself from these,” he said by phone today. “This is truly not a matter of new strategy, rather one of implementing what the company promised before.”
SAA could run out of cash by September if it fails to close a funding gap that is forecast to reach 1.7 billion rand, according to a separate presentation to Public Enterprises Minister Lynne Brown dated Aug. 14, that was also obtained by Bloomberg. That projection was based on an average oil price of $112 a barrel and an exchange rate of 10.75 rand to the dollar. Brent crude traded at $61.85 a barrel on Dec. 12, the cheapest in five years, easing fuel costs for airlines. The rand traded at 11.5916 to the dollar, close to its lowest since 2008.
“Failure to close the gap results in no cash to fund business operations,” the authors of the document say in red writing on a slide titled “Risk of Commercial Insolvency”.
SAA would save more than 100 million rand through staff changes, including the cutting of about 23 pilot positions and the removal of a cabin crew member from business class flights on Airbus A343 and A332 aircraft.
Air Chefs, the airline’s catering company, could be sold for about 100 million rand, according to the document. SAA received an unsolicited takeover bid for the unit via Standard Bank Group Ltd., according to the presentation for Brown.
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