A PLAN to return South African Airways (SAA) to profitability has suffered a blow after Public Enterprises Minister Malusi Gigaba said on Wednesday that he had ordered the airline’s management team to withdraw its tender for more fuel-efficient long-haul airplanes.
The state-owned SAA issued the request for proposals (RFP) for 23 new wide-body, long-haul aircraft late last year. The contract is worth an estimated R60bn.
Speaking at the airline’s 2013 results presentation, Mr Gigaba said the request for proposals the airline had issued did not comply with government policies. "They did not contain crucial elements of industrialisation and localisation, which are vital to South Africa’s policies.
"We needed it to be a little more detailed and specific so that whoever gets that contract should not just provide us with metal. We must see clearly that industrialisation and localisation is emerging in South Africa.
"There must be benefits for our country," Mr Gigaba said.
A more fuel-efficient fleet for long-haul flights plays a crucial role in the airline’s long-term turnaround strategy.
All of SAA’s long-haul routes are showing a loss.
The plan to acquire the new planes has not been abandoned, the delay will mean the airline will continue to face high fuel costs in the interim.
SAA CEO Monwabisi Kalawe said he did not as yet have a completion date for the new RFP. "We don’t have a completion date for the simple reason that the additional work we have been asked to do is work that we are not familiar with as a management team.
"We are grappling with this new requirement for industrialisation and benefiting South Africa."
SAA is urgently attending to the matter, but exercising caution, he said. This is to ensure the airline is adhering to good corporate governance procedures.
SAA chief financial officer Wolf Meyer said in May that the carrier had asked manufacturers to tender for an order for 23 wide-body aircraft for delivery from 2017, and for upgrading the A340s, which would limit costs in the interim.
It is not clear whether the delay will affect that deadline. There is at least a five-year waiting list for new aircraft, though leased fleet could be procured sooner.
Mr Gigaba’s decision does not affect SAA’s acquisition of narrow-body aircraft for its short-haul routes. That plan will see SAA receive 20 new Airbus A320 s to replace its Boeing 737-800 aircraft.
SAA reported an operating loss of R991m for the 2013 financial year, a 21% improvement on 2012. Revenue from operations rose 14% to R27bn while total operating costs jumped 12% to R27.5bn.
The company was particularly hard hit by the falling rand, which resulted in fuel and maintenance bills soaring.
Maintenance costs increased 33%, to R2.3bn from R1.7bn. The fuel bill went up 15% to R9.5bn.
Mr Meyer said on Wednesday that if it had not been for a 13% depreciation in the rand against the dollar during the year under review, the company would have been able to report a R200m profit. "The weakening of the currency translates into a R700m impact."
There were some signs of improvement, though. Passenger numbers were up to 8.8-million and passenger revenue advanced 11% to R17.7bn.
Mango CE Nico Bezuidenhout said the low-cost airline grew revenue 50% and had gained market share.
Meanwhile, SAA remains in a perilous financial condition and hostage to the weakening rand. The business desperately needs to be recapitalised after it reported negative capital of R849m.
Mr Gigaba said all the parties involved in the process of turning around SAA agreed that the Treasury needed to urgently recapitalise the airline. "What we are doing now is to quantify the level of support. This (recapitalisation) should be finalised by the end of March."