SAA looks to upgrade aging jets

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Airline

Johannesburg - South African Airways said it’s seeking to upgrade the engines of its aging Airbus SAS A340 wide-body fleet to cut fuel costs while it decides between new long-haul models from the European manufacturer and Boeing Co.

Chief executive Monwabisi Kalawe held talks last week on making the jets more efficient as he seeks to end the state-owned carrier’s losses, he said in an interview.

SAA has a mix of A340s, including nine of the newest A340-600s seating as many as 317 people and powered by Rolls-Royce Holdings Plc Trent engines for which the UK company has upgrades available.

“The engine manufacturers I met with will be coming to do a pilot on our fleet at the end of October,” Kalawe said yesterday in Johannesburg, where the airline is based.

“If this pilot works, we could save between one and five percent.”

SAA has yet to decide between Boeing’s 787 Dreamliner and the rival A350 from Airbus as it moves toward a less fuel hungry long-haul fleet, Kalawe said.

Chief financial officer Wolf Meyer said in July that it had asked the manufacturers to tender for an order for 23 aircraft for delivery from 2017, and upgrading the A340s will help limit costs in the interim.

Rolls-Royce, the sole engine provider on the A340-600, has developed upgrades to improve fuel efficiency by about 1 percent for the latest Trent 500 engines, with a retrofit now available delivering a further 0.5 to 0.75 percent gain for in-service aircraft.

The improvement should generate a saving of around $200,000 per aircraft per year, the company has said.

 

Recovery Plan

 

SAA is renewing its fleet as part of a turnaround strategy aimed at returning to profitability by 2017, after suffering a 1.36 billion-rand ($135 million) loss for the year ended March 2012.

The government gave the carrier, Africa’s biggest, a 5 billion-rand debt guarantee in October 2012 to ensure it can borrow from financial markets to support a recovery.

Kalawe is the airline’s third chief executive in a year after Siza Mzimela resigned in the wake of a dispute between board members and the government last October.

His successor, Vuyisile Kona, was suspended in February over unspecified allegations.

The chief said in the interview he expects better financial results for 2012-2013 fiscal year, though will continue to need state funds over the next four to five years.

“We have already submitted a request for the amount of money we need and the Public Enterprises Ministry is currently considering it and will get back to us on a fair number,” he said.

“In the fourth year we expect to see a profit.”

 

Gulf Threat

 

A weakening rand and growing competition in the African market pose a risk to SAA’s recovery, with Gulf carriers including Dubai-based Emirates, Qatar Airlines Ltd. and Etihad Airways of Abu Dhabi representing the biggest threat, he said.

“The guys from the Middle East have new equipment and a very low cost structure so they are extremely price competitive,” Kalawe said.

The rand has declined 16 percent against the US dollar in 2013, making it the worst performer of 16 major currencies tracked by Bloomberg.

The currency’s performance is crucial to SAA’s path to profitability, Kalawe said.

About 60 percent of the airline’s bills are dollar-denominated, compared with less than 50 percent of income, according to CFO Meyer.

SAA flies to 26 countries in Africa, together with 11 destinations outside the continent, according to the carrier’s spokesman Tlali Tlali. - Bloomberg News



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