South African Airways Appoints KPMG for Delayed Fleet Overhaul

Aug 06, 2014 2:04 pm ET

(For more on U.S.-Africa Leaders Summit, see EXT6 <GO>)

Aug. 6 (Bloomberg) -- South African Airways SOC Ltd. said it hired KPMG LLP to advise on an order for wide-body jets that’s suffered years of delays as the unprofitable company seeks a capital injection from the government.

The state-owned carrier plans to take 25 new wide-body planes to replace aging Airbus Group NV A340s and help cut fuel consumption as it seeks to break even by 2017, Chief Executive Officer Monwabisi Kalawe said in an interview in Washington.

“They will work with us to design the right process that will help us identify the right manufacturer or lessor,” Kalawe said today at the U.S.-Africa Leaders Summit. “They will review and validate the work that has been done by management.”

SAA, as the airline is known, needs “billions” of rand from South Africa’s government to sustain itself and will focus on more profitable pan-African and domestic routes to recover financially, while also cutting costs, he said. Current strategy envisages leasing the long-haul planes, with Airbus A350s and Boeing Co. 787s under consideration, based on recent comments.

KPMG, which was appointed in the past two weeks, will review the carrier’s planned network and fleet decisions, the request for proposals issued for the aircraft, and the governance of the whole process, Kalawe said, with the exact remit to be determined at a meeting this week.

Capital Boost

SAA will remain state-owned for the duration of Kalawe’s contract, which runs to 2018, and has settled on an outline figure for the capital injection with public enterprises and treasury officials, he said, declining to give the value.

“They’ve agreed a number and that number is currently being discussed and debated by our political principals,” the CEO said. “It was projected that somewhere between financial year 2016 and 2017 the airline would break even.”

Further delays to a long-haul re-fleeting that has been mooted for at least two years would “shift away the break-even point,” as would delaying approval of the capital injection.

SAA said in May 2012 that it would finalize a “major order” to replace aging wide-body planes by the end of that year. Following a rethink the carrier said in 2013 it might seek to upgrade the engines of its four-engine A340s to help curb costs pending a decision on twin-engine replacements.

The airline will also introduce a premium economy class on its flights, Kalawe said today, bringing it into line with ticketing options at other major carriers.