The move comes in the wake of sister airline South African Airways' bid to renegotiate the terms of its aircraft lease from Airbus, which got the national carrier into a tussle with the Treasury.
CEO Inati Ntshanga said South African Express, a domestic and regional carrier, wanted to replace its entire fleet of more than 20 aircraft over the next 10 years, with half of these replaced over the next few years. However, the undercapitalised airline has a weak balance sheet characterised by high levels of debt and cannot afford the replacements while the fiscus also does not have any cash to spare. The airline received a five-year R567m state guarantee in March last year, bringing its total government guarantee to R1bn.
In a briefing to Parliament's portfolio committee on public enterprises yesterday, Ntshanga said the aged fleet - some of the aircraft are 18 years old - increased the ground time required for maintenance, as well as maintenance costs, thereby affecting the airline's on-time performance and reliability.
Delays heightened negative perceptions and frustrations among customers. Ntshanga said the airline wanted to have a fleet of only one type of aircraft as this was more efficient to operate.
He gave an update of the airline's performance in 2015-16, when it made a R132m loss on turnover of R2.6bn. He also briefed the committee on the austerity measures that had been implemented to contain costs. Over the last three years to end March 2015, the company had saved R512m, which enabled it to post an operating profit of R15m.
In 2014-15, a 57% saving was achieved in catering, 42% by ground and passenger handling and 39% in fuel costs, bringing the total for the year to R235m. No retrenchments were planned though staff numbers had been reduced by attrition.
"It is expected that the austerity measures will continue to positively impact on the company's profitability and are ensuring that the airline is financially sustainable," Ntshanga said. For the first six months of the current financial year, total savings exceeded 26% over the previous period and by end-November profit stood at R25m.
South African Express operates 24 routes domestically and in sub-Saharan Africa. As with other airlines, it has been challenged by increased competition, rising operating costs, reduced passenger demand and lower profits.
The depreciation of the rand had also put pressure on profits.
As at the end of the 2014-15 financial year, South African Express had total assets of R1.7bn, while its total liabilities sat at R1.64bn.
Source: Business Day
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