South African Air To Restructure Operations

June 4, 2007

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State-owned South African Airways announced on Monday it was embarking on a restructuring plan in a bid to return to profitability within 18 months.

SAA said the move, which involves spinning off non-flight operations into seven subsidiaries, was expected to result in a ZAR2.7 billion rand (USD$378.8 million) turnaround over the next 12 to 18 months.

"In the face of a high cost base created by, amongst other things, uncompetitive ownership and aircraft lease costs, excessive head count and fuel price volatility, SAA must overhaul its entire business if it wants to survive," SAA Chief Executive Khaya Ngqula said in a statement.

SAA said it may seek outside equity partners for some of its unbundled units and that Air Chefs, the airline's catering supplier, and Galileo, the platform for the travel industry, would be sold outright.

"In principle, SAA needs to focus on its core businesses, and our core business is the movement of people and goods by air. Going forward we will focus on our strengths and explore the myriad opportunities for growth especially in the African market," Ngqula said.

The airline said the proposed timeline for completion of the plan was December 2008.

South Africa's public enterprises minister said in January an initial public offering of SAA could be years away and that the government had no plans to bail out the struggling airline.

The airliner said part of its fleet -- one owned and five leased B747-400 aircraft which are expensive to operate -- would be grounded.

SAA also announced that it would close the Paris route, which has been losing money, in October.

SAA posted a 90 percent fall in profit last year as fuel costs rocketed and said it would consider selling shares only when it had reduced its debts.

At the end of March last year, long-term liabilities amounted to ZAR4.6 billion (USD$645.4 million), while capital and reserves were ZAR1.179 billion (USD$165.4 million).