SAA financing is for growth and fleet modernisation

SOUTH AFRICAN Airways (SAA) is in discussion with the South African Government on financing its bold new growth strategy, which includes growing the number of its long-haul aircraft in the next five years while the short-haul fleet is comprehensively renewed.

SAA CEO Siza Mzimela announced the airline’s expansion and modernisation plans on Friday in Johannesburg. The Aircraft Renewal Programme is aimed at equipping SAA with the latest, most fuel efficient aircraft able to serve the airline’s specific routes and needs and deliver on its mandate and strategic objectives for South Africa.

“Like all airlines globally, we face increasing margin pressure and greater competition. That means that we need the best equipment to do the job in an environment where oil costs are well beyond US$100 per barrel, and our rivals are increasingly and aggressively cherry-picking on many of our routes,” said Mzimela.

“SAA remains determined to serve the South African economy with excellent international, African, and local passenger and cargo air connections”, said SAA’s CEO.  SAA is committed to continue investing in its future, as a contribution to securing the transport infrastructure the whole of the South African economy requires to continue growing, said Mzimela. This includes providing an even stronger network of services to the many African, Asian, and Latin American destinations which are of growing importance to South African business and to the tourism industry.

SAA plans to take its current long-haul fleet of 24 aircraft to up to 31 in the next five years. In the same period, the airline says it will renew its short-haul fleet entirely, replacing the current Boeing 737-800 aircraft with more fuel-efficient Airbus A320 aircraft.  

SAA will derive additional savings and efficiencies as the A320s share common cockpits, a high degree of parts, and operational and maintenance procedures with SAA’s existing A319 and A340 fleet. This translates directly into streamlined training and increased productivity across SAA’s pilots, cabin crew and technical and engineering staff.

The fleet renewal will also give SAA the ability to make massive fuel savings, while providing better and often more frequent connections to key destinations. More modern aircraft will allow SAA to be much more efficient and to ensure an ability to grow as it gets stronger.

SAA’s current board and management have scored major successes, since taking over two years ago, in ensuring the profitability of the airline as it serves its markets better. A programme aimed at boldly growing the business, while achieving significant further efficiencies, is in place and will show even stronger returns during 2012.

“We have introduced a number of new flights to cities, which are of importance to the South African economy such as Beijing, Ndola on the Zambian copperbelt, Bujumbura, Kigali, and Pointe Noire, a hub of the West African oil industry,” said Mzimela. SAA has recently optimised its New York route with new non-stop services and increased frequencies to Accra, Dar-es-Salaam, Entebbe, Harare, Mauritius and Lusaka.  Additional cargo frequencies to a number of sub-saharan African destinations also support South Africa’s trade development objectives”

A 2011 Oxford Economics study indicated the significant contribution of SAA to the entire South African economy. The study measured aviation’s contribution to South African GDP at 2.1% or R50.9 billion, including 227,000 direct and indirect jobs. Even before implementation of the airline’s bold growth strategy, SAA accounts for approximately 50% of international and domestic passengers to and within South Africa. 

SAA’s discussion with the Government on financing its bold growth strategy includes an in-depth exploration of the option of a capital injection aimed at securing the airline’s ability to thoroughly modernise its operating fleet. Exact figures are still under discussion, but this re-capitalisation could involve the deployment of between R4 billion and R6 billion over five years by the shareholder.

“Across the globe, airlines are turning to their shareholders for support as they respond to the massive pressures in the industry by seeking greater efficiencies through fleet and systems modernisation,” said Mzimela. “Like other airlines which are in very good shape and have a key role in their national economies, SAA is seeking to keep ahead of the game through these measures aimed at growth and efficiency.”