Zuma, Gordhan’s Conflicting Orders Frustrate SAA’s Acting CEO

Johannesburg, South Africa, Capital Markets in Africa: South African Airways is having to deal with conflicting orders from the country’s Finance Minister Pravin Gordhan and President Jacob Zumaand that’s hindering the unprofitable state-owned airline from making a full recovery, acting Chief Executive Officer Musa Zwane said.

The carrier needs firm decisions on whether SAA should be privatized, how it should be capitalized, the make-up of a new board and a new CEO, Zwane said in an interview. The former head of the airline’s maintenance unit said he hasn’t put his name forward for the permanent position, and a short-list for his successor is being discussed by the Treasury.

“You have conflicting messages: the minister in his budget says this, and then the president says something different,” Zwane said in Dublin at the International Air Transport Association’s annual gathering. “This is not a tough role, but I think if you look at the dynamics of the role and the role-players, they make it tough.”

Bongani Ngqulunga, Zuma’s spokesman, didn’t answer his mobile phone or respond to a message seeking comment. Treasury spokeswoman Phumza Macanda didn’t immediately respond to an e-mail, phone call and text message seeking comment.

Zuma and Gordhan, who was reappointed to the post in December having previously served as finance minister from 2009 to 2014, have given Zwane opposing guidance on whether fellow state carrier SA Express should be integrated into SAA, the CEO said. The government is considering merging the two airlines and selling a stake in the enlarged carrier to private investors, Gordhan said in his budget speech in February. In contrast, Zuma said on a visit to SAA’s headquarters last month that the government would never sell or privatize the carrier.

Cost Reductions
Zuma reinstated Gordhan as finance minister four days after the rand and government bonds plunged following his decision in December to removeNhlanhla Nene from the post and replace him with a little-known lawmaker, raising questions about the government’s commitment to fiscal targets.

Zuma last month denied that he and Gordhan are involved in a power struggle over control of the Treasury.

Johannesburg-based SAA has met a 1.1 billion rand ($72 million) annual cost-reduction target, Zwane said. The CEO, who has yet to finalize the airline’s financial results for the year through March 2015, said sales weren’t “as bad as we budgeted it to be,” without giving further detail. SAA has sales of 28.7 billion rand in the year through March 2014, according to data compiled by Bloomberg.

Instability at SAA, which has had seven acting or permanent CEOs in less than four years, escalated when Chairwoman Dudu Myeni attempted to renege on a leasing contract with Airbus Group SE last year. The airline, which came under the Treasury’s oversight in 2014, was later ordered by Gordhan to honor its agreement.

The carrier is cutting unprofitable routes including Johannesburg to Abu Dhabi, ending a year-old partnership with Etihad Airways. The airline is also reducing capacity. SAA hasn’t made a profit since 2011.

A components support contract awarded to AAR Corp. is under internal investigation, Zwane said. The tender is contested by Air France-KLM, which has accused SAA of choosing a more expensive bid. The French carrier was wrong to approach media on the issue, the CEO said, and said that the bid won’t be put out for re-tender.

Zwane is attempting to restructure SAA’s debt to reduce the interest rate charged on loans to less than 6 percent from an average of 8 percent, he said.

Source: Bloomberg Business News