A formal oversight structure involving the National Treasury, as well as executive and nonexecutive directors from South African Airways (SAA), has been established to monitor the implementation of a “revalidated” turnaround strategy at the lossmaking and heavily indebted national carrier.

Speaking after a much-delayed annual general meeting at Airways Park, in Gauteng, Finance Minister Nhlanhla Nene said the structure would include Deputy Finance Minister Mondli Gungubele and had been created in light of the consistent failure of previous leadership to implement approved turnaround strategies.

He promised, however, that there would be no “blurring of the lines” with regard to the role of the shareholder and the company, with the main aim of the structure being to meet regularly and “closely monitor” progress on the implementation of the plan.

The difference, Nene said, between a turnaround strategy that worked and one that did not was primarily a function of the commitment shown to implementation. “If it’s not implemented, it’s not worth the paper it’s written on, and it’s not worth raising the resources to support it, because those resources will be going down the drain.”

The revalidated plan included short-, medium- and long-term components that were “specific, measurable, attainable and time bound”.

Nene confirmed that the airline’s financials had deteriorated further and indicated that, with SAA continuing to make losses, the objective of reducing debt to sustainable levels was a “tall order”. SAA had debt of R10-billion, which was due for repayment in less than a year.

SAA CEO Vuyani Jarana confirmed that SAA had recorded a loss of R5.6-billion in 2016/17 and indicated that the position had not improved materially during the 2017/18 period, which ended on March 31.

He also indicated that the airline was unlikely to break even until the 2021 financial year and could incur a similar level of losses in the 2018 and 2019 financial years.

Jarana refused to be drawn on the full extent of the airline’s current cash-flow distress when questioned about the group’s current liquidity position, saying only that “our revenues do not cover all our operating requirements”.

“To do so, we need working capital, which can come from two sources if you have not yet broken even: either your shareholder continues to support with working capital requirements or you’ve got lenders who want to partner with you, who see the future. And that’s what we are engaging on with the lenders and with the shareholder.”

In addition, the group was meeting with suppliers to negotiate payment terms.

However, chairperson JB Magwaza acknowledged that SAA was currently “hamstrung” by its lack of liquidity. A cash-flow projection released as part of the 2017 results indicates that SAA could still be experiencing a negative cash flow of R7.3-billion in 2023, having peaked at a negative R10-billion in 2020.

“But we are addressing the issue of liquidity and we need to get on top of that issue, otherwise it’s going to be difficult to implement the strategy,” Magwaza insisted.

Jarana said a “change hub” had been established to drive both a culture change and restructuring. However, it was unlikely that the restructuring would include any sale of a position in the airline to a strategic equity partner until the business had been stabilised.

“Our view is that [the sale of a stake to a strategic equity partner] is probably two to three years out. “However, that does not mean that the board has not looked at some of the noncore assets to make decisions around those,” he said, without giving specifics.

Using a boxing analogy, Jarana said that, in the longer term, SAA had to recognise that it was a lightweight, but that its strategy would be to be the “champion in the lightweight division”.

This would require a major fleet and network realignment, whereby SAA’s low-cost carrier, Mango, would play a bigger role on the domestic network, relative to the full-service SAA offering. An immediate fleet priority would be to remove the expensive wide-body aircraft from domestic routes.

Regionally, SAA would pursue partnership and alliances to improve its African coverage, while, internationally, the airline would seek to position itself as a ‘boutique’ operator, distinguishing itself through its customer service.

“If you are not going to be big, you are going to have to make sure that customers choose you ahead of the competition. And you can only do that through customer experience and service differentiation,” Jarana explained.

He said the London–Johannesburg route, which would be pared back to a single daily flight from mid-April, would be a key focus area for driving this new customer-experience model.