SAA plans to lease new aircraft to cut costs

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IOL pic jun2 saa plane generic Independent Newspapers A South African Airways plane prepares to land at OR Tambo International Airport near Johannesburg. File picture: Simphiwe Mbokazi

SAA has resolved that it will not wait for the state process to acquire new planes for its loss-making long-haul routes.

Spokesman Tlali Tlali said last week that the national carrier was now investigating the possibility of getting new aircraft from the existing lessors in the market – and the sooner this was done, the better.

“We are fully conscious of the impact the delay in acquiring the new equipment could have on our operating costs, taking into account that SAA has yet to conclude its RFP [request for proposals] on wide-body fleet procurement.

“In terms of our targets, the sooner we find equipment replacement, the more chances we create of reducing our operating costs,” Tlali said.

The older-generation, four-engine aircraft that SAA uses have led to losses on all its long-haul routes.

The acquisition of new planes was delayed when the former minister of public enterprises, Malusi Gigaba, sent the state-owned airline back to the drawing board at the start of the year to redo its RFP.

Acquiring new wide-body planes, especially for the long-haul routes, was the top priority in SAA’s turnaround strategy to return to profitability.

But Gigaba ordered SAA’s management to withdraw its tender for more fuel-efficient aircraft, stating that its RFP did not contain crucial elements of industrialisation and localisation. SAA had intended to procure 23 new wide-body aircraft, estimated to cost R60 billion for the whole package.

Tlali did not indicate how many aircraft SAA was looking to replace on lease terms, as the company would submit its new RFP in September to buy the rest of the fleet. But he said the replacements could move SAA closer to profitability levels in line with its projections.

“The existing wide-body fleet has high fuel consumption levels and that makes our fuel costs part of SAA’s big-ticket items when it comes to operating costs,” he said.

According to Matthew Saks, the customer finance manager at Airbus, SAA had used a leasing option to acquire the single-aisle A320 aircraft that Airbus would be delivering to the carrier next month.

He said 44 percent of the aircraft that the manufacturer delivered to its customers last year were leased.

Leasing has become popular with airlines as it enables them to get 100 percent financing as opposed to 60 to 80 percent when financing through a loan facility. There are two options available to airlines – an operating lease and a finance lease.

But because SAA was looking to approach existing lessors, it was likely to lean towards an operating lease. This was the option when one was acquiring a plane owned by a leasing company. The monthly rental on this option was about 1 percent of the aircraft’s purchase price, Saks said.

But the actual percentage is determined by the airline’s risk profile and negotiations between the lessee and the lessor. A regular contract term is between three and 10 years.

To lease aircraft, airlines have to pay a pre-delivery deposit, which Airbus said could also be financed. Up to 75 percent of the deposit can be financed by a third party. The airline has to finance at least 25 percent. Saks said Airbus facilitated about $1 billion (R10.6bn) worth of pre-delivery deposit financing every year.

Airbus demonstrated last week that its new A350, which SAA’s fleet committee recommended over the Boeing 787 to the board in 2012 to replace its A340-600 long-haul fleet, would reduce the airline’s fuel consumption and maintenance costs by about 40 percent.

After taking into account all operating costs as well as the fleet acquisition costs, the A350-900 would cost SAA 11 percent less to operate on its international routes. - Business Report



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