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Update on South African Airways Recapitalisation Programme
A presentation to the Standing Committee on Appropriations 21 November 2017
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Table of Contents 1 2 3 4 5 6 7 Purpose of the presentation
SAA at a glance 3 SAA and the economy Table of Contents 4 SAA capital structure & Debt Maturity 5 Allocation of the R10 billion recapitalisation 6 SAA Performance Future outlook for SAA and the turn-around plan 7
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Purpose of the presentation
To updated the Standing Committee on Appropriations on how SAA has allocated the R10 billion capital injection as well as update the committee on the Long Term Turn-around Strategy (LTTS) implementation.
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Strengthening governance for a financially sustainable SAA
Mr JB Magwaza Chairperson Ms. T. Mgoduso Ms. S. Tshabalala Ms T. Mhlari Ms. N. Fakude Mr. A. Bassa Mr. A. Moosa Mr. P Maluleka Mr. P Tshisevhe Mr. M. Kingston Mr. G Rotshchild Mr V. Jarana CEO Ms P. Nhantsi CFO Board Committees Remuneration, Human Resources & Nominations : Ms T Mgoduso - Chairperson Finance and Investment (overseeing Procurement): Mr M. Kingston - Chairperson Social, Ethics and Governance : Mr G Rothschild - Chairperson Long Term Turn-around Strategy (LTTS) : Ms S Tshabalala - Chairperson Audit and Risk Committee : Mr. A Moosa - Chairperson
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MAINTENANCE REPAIR & OVERHAUL DOMESTIC PLUS ZANZIBAR
SAA at a glance Airlines Other capabilities ENTITY FULL SERVICE CARRIER LOW COST CARIER (LCC) MAINTENANCE REPAIR & OVERHAUL CATERING SERVICES SERVICE ARCHITECTURE INTERNATIONAL REGIONAL DOMESTIC DOMESTIC PLUS ZANZIBAR MARKET COVERAGE CARGO SERVICE LOYALTY PROGRAMME 100% SUBSIDIARY OF SAA OWNERSHIP 100% STATE OWNED TRAVEL AGENCY ...full service capability in the airline industry
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8 Domestic Destinations 19 Regional Destinations
SAA has material relevance in the economy Cargo Aircrafts Revenues Passengers Employees R30 Billion R 64 Tons 10,1 Million 10 669 Employees 8 Domestic Destinations 19 Regional Destinations 8 International Destinations
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15% of ZA Global Connectivity
SAA and the economy R10,8 billion Value Added Contribution 0,3% of GDP R7.9 billion In Taxes over a 10 year period 53 138 Direct and Indirect Jobs 0,35% of Jobs 15% of ZA Global Connectivity
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Lack of stability undermines strategy execution
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 New SAA Pax and Cargo strategy General Strategy advise Domestic Strategy (Including Mango) Full Restructuring Program 3 areas Domestic Regional SAAT DPE Review of SAA financial position Regional Aviation Expansion Strategy 2013 2014 2015 2016 2017 Nico Bezuidenhout Monwabise Kalawe Nico Bezuidenhout Thuli Mpshe Musa Zwane Vuyani Jarana The Board/ management worked with independent Seabury to refocus and refine the LTTS The Plan was tabled with Shareholder June 2017 An abridged version of the Plan was tabled with Parliament 31 July 2017. The Plan is being implemented and progress thereon is included in this presentation. MTT 90 day LTTS Full strategic review Review Fleet and network plan of LTTS Review LTTS for DPE - Incorporate into Corporate Plan 2014 Move to NT Implement Step changes Revalidate fleet and network plan - Update core plan Proposed corporate Structure Deloitte to review Strategy: Incorporate into Corporate Plan 2015 and 2016 Review Structure for DPE and NT Full 5 year plan to Stabilise company … lack of stability impacting business results
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Increase in aircraft leasing costs
SAA started making operating losses in 2012 Increase in aircraft leasing costs Impairments in 2014 & 2015
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Properties of a sound capital structure
SAA Best Practice 0 to 10 times Negative Debt to Equity Flexibility Risk Minimum cost of capital Sufficient liquidity Highly Flexible None Minimum High Minimum High 10%-15% of 12-month revenue Negative 0.6291 6.25 1.43 0.35
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SAA Balance Sheet Profile
Even with the R10 billion SAA will remain undercapitalised with a negative equity position of over R9 Billion
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Total liabilities Exceed Total Assets
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Outstanding loans and associated finance cost
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SAA long-term debt maturity profile
Total R13 889 FY 17/18 FY 18/19 FY 19/20 FY 20/21 Step 06 FY 21/22
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Allocation of the R10 Billion capital injections
SAA Balance Sheet Profile Opening Balance Standard Chartered R16,7 bn R2,2 bn Allocation of the R10 Billion capital injections Citibank Domestic Lenders & Citibank Outstanding Debt R700 m R7 billion will be used to repay lenders whilst R3bn has been used to address short term working capital challenges R13,8 bn R4,057 bn Outstanding Debt R9,74 bn APR 17 JUN 17 OCT 17 NOV 17 MAR 18 APR 18
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Reasons for SAA’s extreme reliance on debt
Weak Capital Structure : SAA is over geared and finance costs are causing additional strain on profitability. Overreliance on leasing Aircrafts : Only 9 of the 64 Aircrafts are owned by SAA. SAA’s lack of profitability weakens its negotiating power over suppliers. Increased competition : Domestic and international competition is driving margins down Poor commercial capability : All domestic routes and most international routes that SAA services are not profitable as a result the company is not able to generate cash hence the over reliance on debt to finance operations. Ageing fleet and poor fleet profile : Is driving cost to operate and eroding efficiencies respectively. High cost structure: SAA has very high operating cost structure.
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The strategic outcome of the Long Term Turn-around Strategy is a Financially Sustainable SAA
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Market dynamics Aviation outlook weakening
Overcapacity in Middle east will lead to decrease in average fares Cargo revenues are declining faster than pax revenue Regional divergence in Profitability remains Operating margins are declining Load factors higher than expected Partially driven by a slow down of globalization Africa is least profitable
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The domestic market is commoditising fast
The domestic market is shifting towards Low Cost Carriers Increased competition in the South African market leads to lower fares. The average $ fare has decreased by an average of 11% YoY since 2014 The Total Domestic Seat capacity has grown by 0.8% (2016 vs 2017), and by 20% in the past 5 years. SAA associated brands (SAA+ Mango + SA Express + SA Airlink) represent about 55% of the market. 19
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The Middle Eastern Airlines are pushing more capacity
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BALANCE SHEET RESTRUCTURING
Pillars of the Long Term Turn-Around Strategy LIQUIDITY R BALANCE SHEET RESTRUCTURING REVENUE ENHANCEMMENT COST OPTIMISATION STRATEGIC DIRECTION CRITICAL ENABLERS GOOD GOVERNANCE BEST PEOPLE DIGITAL TECHNOLOGIES AVIATION POLICY CUSTOMER EXPERIENCE
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Not servicing routes profitably hence continued post losses
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Review & Revamp Commercial Strategy.
Priority actions Liquidity Management. Review Cost Structure. Review & Revamp Commercial Strategy. Recapitalised the business.
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Consolidation of airline assets into SAA: SA Express
Important Strategic Consideration Consolidation of airline assets into SAA: SA Express Review the whole of state aviation policy. Strategic Equity Partner for SAA.
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Thank you
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