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SAA posts gain after renegotiating 'forgotten' A320 deal

South African Airways has renegotiated a problematic Airbus agreement in a deal which has improved its income statement by R407 million ($55 million).

SAA had ordered a batch of Airbus A320s several years ago but believed, incorrectly, that it had later cancelled them.

The flag-carrier has posted an operating profit of R1.9 billion for the year to 31 March 2009, and a net profit of R398 million.

SAA, which has undergone substantial restructuring, generated revenues of R26.4 billion, up 19%.

But it managed to control costs, keeping the increase to 2%, with total expenditure of R15.9 billion.

Its performance markedly improved from the net loss, after restructuring, of nearly R1.1 billion in the previous year - although the carrier admits that the Airbus renegotiation contributed heavily.

SAA says the credit of R407 million is attributable to a net reversal of the 2004 impairment of pre-delivery payments to Airbus for A320 aircraft. SAA had ordered 15 of the type, as part of a broader Airbus deal in 2002, but subsequently reconsidered.

The pre-delivery payments were impaired, says the carrier, because the deal "was thought to have been cancelled".

"Agreement has since been reached with Airbus to reinstate the deal under more favourable terms that are acceptable to SAA," it adds.

SAA acting chief Chris Smyth says the airline's restructuring is the reason why it is operationally profitable.

"We know that we must continue to root out cost inefficiencies as we have done over the past 24 months," he adds.

"More importantly, we need also to ensure that we take advantage of new opportunities and move quickly into new markets and routes that can be sustained from a profit point of view."

He says SAA will also closely monitor routes which may underperform, stating that frequencies on certain domestic and international routes have already been reduced, and that cuts on flight frequencies are foreseen for the rest of the year.

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