South African Airways to shrink services as part of revamp

•  To reduce flights by 23%, retire five aircraft
•  Treasury considering a 13 billion rand bailout
• Treasury in talks to roll over SAA maturing debts 

CAPE TOWN  (Reuters) - South African Airways will fly 23% fewer flights by the end of the year as it retires five aircraft, the national carrier said last week, part of a revamp aimed at returning to profit.

Loss-making SAA, which flies one of Africa’s largest fleets, received state funds in July to help it repay debts. It also depends on government debt guarantees of about 20 billion rand ($1.5 billion).

South Africa’s Treasury is considering a 13 billion rand bailout to keep SAA going as bankruptcy could hurt an economy already reduced to “junk” status by ratings agencies Fitch and S&P Global Ratings.

“One narrow-body aircraft has left the fleet, with four more expected to leave the fleet by December 2017,” acting chief executive Musa Zwane told a parliamentary committee.

Zwane said the impact of the reduced flights would mostly be felt among domestic passengers, although regional and international routes will also be affected.

As part of its turnaround strategy, he said the airline was making good progress in bringing down operational and aircraft maintenance costs.

However, liquidity constraints and exposure to volatile currency exchange rates remained a challenge, he said.

“So far there is a positive contribution by the initiatives that we have started and we are on the right footing,” he said.

The Treasury last month appointed Vodacom Group executive Vuyani Jarana as SAA chief executive. He is the first permanent leader at SAA for two years.

The deputy minister of finance told Reuters there was a “strong possibility” that Jarana will take up his new role by 1 November.

South Africa’s cabinet is considering selling its stake in landline provider Telkom, where government holds a 39% stake, to help raise 10 billion rand to cover a large part of SAA’s total 13 billion rand bailout.

National Treasury director-general Dondo Mogajane told reporters they were planning to bring a special appropriation bill for 10 billion rand to parliament within a month.

“That is the plan,” he said.

Treasury officials said discussions were continuing with lenders ahead of a Sept. 30 deadline when debts of around 6.8 billion rand are due to mature.

In July, the airline was provided state funds to repay loans of about 2.3 billion rand to Standard Chartered.

SAA is now in talks to make an initial part-payment on 1.8 billion rand owed to Citibank and help stave off a default by month-end, Mogajane said earlier.

“Currently, most of them are prepared to roll over and the issue is up to when,” Mogajane said in relation to nine other lenders owed money by SAA.

SAA Chief Financial Officer Phumeza Nhantsi said they were negotiating to have the loans extended by at least 18 months.