South African Airways to cut costs under ratings scrutiny

Passengers board a South African Airways Boeing 737 aircraft at the Kamuzu International Airport in Lilongwe, file. REUTERS/Siphiwe Sibeko
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JOHANNESBURG (Reuters) – South African Airways (SAA) will become profitable by containing costs and reviewing flight routes, it said on Friday, as credit rating agencies seek evidence that loss-making state firms are curbing spending.

Moody’s, Fitch and S&P, who are due to review their ratings of Africa’s most industrialised country in November and December, have raised concerns about the burden state-run firms put on stretched public finances.

SAA has been surviving with the help of 20 billion rand ($1.45 billion) in state guarantees and posted a 1.5 billion rand loss for the 2015/16 financial year, after losing 5.6 billion rand the year before.

“The board and shareholder recognises that the trend of reporting losses cannot persist and that urgent and radical actions are required,” SAA Chairwoman Dudu Myeni told reporters.

Myeni said SAA could return to profitability by 2021 by cutting costs, improving its liquidity and reviewing unprofitable routes.

Finance Minister Pravin Gordhan slashed growth forecasts, announced government spending cuts and warned higher taxes were on the way in a mid-term budget on Wednesday.

He told business leaders on Friday that SAA’s new board, which was appointed in September, was taking positive steps and the airline could achieve a significant improvement in financial performance within 1 to 2 years.

(Reporting by Tiisetso Motsoeneng; Writing by Joe Brock)

 

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