(Updates with fund manager comment in fifth paragraph.)
Aug. 7 (Bloomberg) -- South African Airways SOC Ltd., the unprofitable state-owned airline trying to renew its fleet, will probably require private funding of 50 billion rand ($4.64 billion) to stay afloat, according to the government.
“We are looking at guarantees for funding for SAA,” Public Enterprises Minister Lynne Brown said at a briefing in Johannesburg today. “They have to meet conditions of the open market.” The funds would come from private investors in the form of loans or bonds and be backed by the Treasury.
SAA, as the carrier is known, has hired KPMG LLP to advise on the acquisition of about 25 aircraft to replace older models and reduce operating costs, Chief Executive Officer Monwabisi Kalawe said yesterday. The airline is battling with an aging long-haul fleet and won’t break even until fiscal year 2016 or 2017, Kalawe said.
The airline accumulated total losses of about 16 billion rand as of March 2013. While the airline is surviving off loans backed by the state, it doesn’t have outstanding bond debt.
“SAA has never been to the bond market over the past decade at least,” Rashaad Tayob, who helps manage 65 billion rand at Abax Investments (Pty) Ltd., said by phone from Cape Town. “There will be a market for the airline’s debt if there is a state guarantee.”
The airline’s operating loss for the 12 months through March 2013 narrowed to 991 million rand from 1.25 billion rand the previous year. Revenue rose about 14 percent to 27.1 billion rand, according to its annual report.
“It’s been loss making for the past decade, being mismanaged for a number of years in an industry that is quite tough,” Tayob said.
Kalawe is SAA’s fourth CEO since October 2012. The former managing director of Compass Group Plc’s Southern African unit was appointed in April last year following the resignation or suspension of former executives.
“I had a barrage of issues around SAA and we are trying to get the governance issues out of the way,” said Public Enterprises Minister Brown, who took the post following national elections in May.