South Africa Airways secures US$250m funding in its turnaround strategy

SOUTH AFRICA –South Africa Airlines (SAA), a state-owned airline, has secured a US$250 million funding to enable the cash strapped firm to finance its working capital requirements within the first half of this year.

Vuyani Jarana, chief executive officer at SAA sating despite facing serious financial challenge, the airline has made remarkable strides in its turn around strategy,reports Business Day.

This comes at a time when the airline is due to pay a US$650 million credit facility, which Deon Fredericks, chief finance officer SAA, said the firm is engaging negotiation with lenders to extend the payment terms.

Last year, SAA requested a US$1.54 billion funding from the government to help in recapitalising its balance sheets as well as provide a working capital for the implementation of its three-year turnaround plan.

Fredricks said that firm required a further US$280 million to finance its working capital in the 2019/2020 financial year with the government only providing US$350 million – during the medium-term budget last year.

The huge debt amounting to us$900 million, which is currently guaranteed by the government has compelled the company to consider recapitalising in order to improve its ability to compete.

However, Vuyani Jarana highlighted that the airline has made significant progress in implementing its turnaround strategy as it focuses on breaking even by the 2021 financial year.

In the six months to September 2018, SAA beat its budgeted targets on revenue, operating costs and reported a significantly smaller net loss than expected.

Jarana said that as part of its turnaround strategy, the company has scrapped off one Johannesburg-Heathrow flight, which allowed the route to earn a gross profit for the first time in a decade.

The company has also implemented a new supply chain policy helping the firm save costs worth US$21.17 million amid improvements on its Technical desk, domestic, regional and other international routes.

However, the firm is still grappling with challenges on its supply chain which has exerted pressure on cash flow.

Additionally, its precarious cash position has also limited the airline’s ability to take out hedges on foreign exchange transactions and fuel purchases, a major cost driver.

Jarana also unveiled plans of reorganising the airline into three business units – as part of a revamp plan.

According to Javana the decentralised domestic, regional and international business units will have their own management in order to ensure the airline becomes more agile and increase accountability.

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