South African Airways Agrees $642 Million Debt Rollover Deal in Principle

State-owned South African Airways (SAA) has reached an agreement in principle with lenders to roll over $642 million of debt, its CEO said on Tuesday, giving him room to execute a turnaround aimed at weaning the airline off government bailouts.

South African President Cyril Ramaphosa has made a point of supporting ailing state firms like SAA, which survive on government handouts, but the extent of their financial difficulties has meant slow progress.

SAA, which has not made a profit since 2011, has drawn up a five-year turnaround plan that includes slashing costs and cancelling unprofitable routes as it grapples with cost increases that far outstrip revenue growth.

Chief Executive Vuyani Jarana told reporters at a CAPA aviation summit in Dubai that SAA had reached an agreement in principle about extending the maturities of its R9.2 billion ($642 million) debt burden. He did not give details of the agreement, saying talks with lenders were ongoing.

“The principle to roll over the debt has been struck but we do need to meet certain conditions,” he said. The debt had been due at the end of March.

Extending debt maturities for the long term would give the executive team led by Jarana, a former executive of mobile phone firm Vodacom, room to focus on the turnaround plan that has pencilled in a return to profitability in 2021.

That forecast is largely dependent on the oil price staying at or below $75 a barrel, and the airline accessing a 4 billion rand injection from the government to fix its capital structure.

As part of the plan, Jarana said SAA was in the process of appointing advisors for the sale of its in-flight catering unit Air Chefs while also looking at turning its no-frills unit Mango into a hybrid rather than a pure low-cost carrier.

(Reporting by Alexander Cornwell; editing by Louise Heavens and Susan Fenton)