A presentation to the Standing Committee on Appropriations 21 November 2017 1 2 3 4 5 6 7 Purpose of the presentation SAA at a glance SAA and the economy SAA capital structure amp Debt Maturity ID: 1029704
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1. Update on South African Airways Recapitalisation ProgrammeA presentation to the Standing Committee on Appropriations21 November 2017
2. 1234567Purpose of the presentationSAA at a glanceSAA and the economySAA capital structure & Debt MaturitySAA Performance Allocation of the R10 billion recapitalisationFuture outlook for SAA and the turn-around planTable of Contents
3. 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. Purpose of the presentation
4. Strengthening governance for a financially sustainable SAA Mr JB MagwazaChairpersonMs. T. MgodusoMs. S. TshabalalaMs T. MhlariMs. N. FakudeMr. A. BassaMr. A. MoosaMr. P MalulekaMr. P TshisevheMr. M. KingstonMr. G RotshchildMr V.JaranaCEOMs P. NhantsiCFOBoard CommitteesRemuneration, Human Resources & Nominations : Ms T Mgoduso - ChairpersonFinance and Investment (overseeing Procurement): Mr M. Kingston - ChairpersonSocial, Ethics and Governance : Mr G Rothschild - ChairpersonLong Term Turn-around Strategy (LTTS) : Ms S Tshabalala - ChairpersonAudit and Risk Committee : Mr. A Moosa - Chairperson
5. ENTITYSERVICE ARCHITECTUREMARKET COVERAGEFULL SERVICE CARRIERLOW COST CARIER (LCC)INTERNATIONALREGIONALDOMESTICDOMESTIC PLUS ZANZIBAROWNERSHIP100% STATE OWNED100% SUBSIDIARY OF SAASAA at a glance MAINTENANCE REPAIR & OVERHAULCATERING SERVICESAirlinesOther capabilitiesCARGO SERVICELOYALTY PROGRAMMETRAVEL AGENCY...full service capability in the airline industry
6. R30BillionR64EmployeesCargoAircraftsRevenuesPassengers8 Domestic Destinations19 Regional Destinations8 International Destinations110 905 Tons 10,1 Million10 669Employees SAA has material relevance in the economy
7. SAA and the economy R10,8 billionValue Added Contribution0,3% of GDPR7.9 billionIn Taxes over a 10 year period53 138 Direct and Indirect Jobs0,35% of Jobs15% of ZA Global Connectivity
8. New SAAPax and Cargo strategyGeneral Strategy adviseDomestic Strategy (Including Mango)Full Restructuring Program3 areasDomesticRegionalSAATDPE Review of SAA financial positionRegional Aviation Expansion StrategyLTTSFull strategic reviewReview Fleet and network plan of LTTSReview LTTS for DPE - Incorporate into Corporate Plan 2014MTT90 dayMove to NTImplement Step changesRevalidate fleet and network plan- Update core planProposed corporate StructureDeloitte to review Strategy:Incorporate into Corporate Plan 2015 and 2016Musa ZwaneThuli MpsheNico BezuidenhoutNico BezuidenhoutMonwabise KalaweVuyani JaranaReview Structure for DPE and NTFull 5 year plan to Stabilise companyLack of stability undermines strategy execution … lack of stability impacting business results
9. Impairments in 2014 & 2015 Increase in aircraft leasing costsSAA started making operating losses in 2012
10. Debt to EquityFlexibilityRiskMinimum cost of capitalSufficient liquiditySAANegativeNoneHighHigh NegativeProperties of a sound capital structure 0 to 10 timesHighly FlexibleMinimum Minimum10%-15% of 12-month revenueBest Practice0.62916.251.430.35
11. SAA Balance Sheet Profile Even with the R10 billion SAA will remain undercapitalised with a negative equity position of over R9 Billion
12. Total liabilities Exceed Total Assets
13. Outstanding loans and associated finance cost
14. R5 480R609R3 500R1 500R2 800TotalR13 889FY 17/18FY 18/19FY 19/20FY 20/21Step 06FY 21/22SAA long-term debt maturity profile
15. R16,7 bnAPR 17R2,2bnR700 mR13,8bnJUN 17OCT 17NOV 17OpeningBalanceStandardCharteredCitibankOutstandingDebtR4,057bnMAR 18R9,74bnDomestic Lenders &CitibankAPR 18OutstandingDebtR7 billion will be used to repay lenders whilst R3bn has been used to address short term working capital challengesAllocation of the R10 Billion capital injectionsSAA Balance Sheet Profile
16. 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 downPoor 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. Reasons for SAA’s extreme reliance on debt
17. The strategic outcome of the Long Term Turn-around Strategy is a Financially Sustainable SAA
18. Market dynamicsAviation outlook weakeningOvercapacity in Middle east will lead to decrease in average faresCargo revenues are declining faster than pax revenue Regional divergence in Profitability remains
19. The domestic market is shifting towards Low Cost Carriers 19The domestic market is commoditising fast
20. 20The Middle Eastern Airlines are pushing more capacity
21. LIQUIDITYRBALANCE SHEET RESTRUCTURINGREVENUE ENHANCEMMENTCOST OPTIMISATIONSTRATEGIC DIRECTIONGOOD GOVERNANCEBEST PEOPLEDIGITAL TECHNOLOGIESAVIATION POLICYCUSTOMER EXPERIENCECRITICAL ENABLERSPillars of the Long Term Turn-Around Strategy
22. Not servicing routes profitably hence continued post losses
23. Priority actions Liquidity Management. Review Cost Structure. Review & Revamp Commercial Strategy. Recapitalised the business.
24. Consolidation of airline assets into SAA: SA ExpressReview the whole of state aviation policy.Strategic Equity Partner for SAA. Important Strategic Consideration
25. Thank you