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South African Airways Seeks Investor to Revive Its Fortunes

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South African Airways
  • South African Airways Seeks Investor to Revive Its Fortunes

South African Airways will revive a plan to seek an equity partner that’s able to provide cash and operational savings to help turn around the state airline, according to its new chief executive officer.

A strategic investor would ideally come from within the aviation industry, CEO Vuyani Jarana, 47, said in an interview at Bloomberg’s Johannesburg office on Monday. That will enable unprofitable SAA to share costs, improve customer service and receive a capital injection, he said.

“You don’t just want a pure investor such as private equity,” said Jarana. “With a strong equity partner that has operations elsewhere, you are able to leverage from each other’s capabilities.”

A successful search for a new investor would solve the most pressing challenge facing Jarana — that of putting SAA on a sure financial footing without need of a further government bailout. It’s also a revival of a plan raised by former Finance Minister Pravin Gordhan in his budget speech in February 2016, though the formation of a new board to lead the search was only finalized last month. Jarana, who started Nov. 1, is SAA’s first permanent CEO for more than two years.

While the airline hasn’t started the process of searching for a partner, there have been expressions of interest, Finance Minister Malusi Gigaba told reporters at SAA’s headquarters in Johannesburg on Tuesday. In a separate fund-raising exercise, he’s also asked the carrier to compile a list of assets that could be sold, the minister said.

Swiss Air bought a 20 percent stake in SAA in 1999, only for the South African government to buy it back after the Swiss carrier went bankrupt. SAA is also part of the Star Alliance, a global code-sharing network that includes Deutsche Lufthansa AG and Singapore Airlines.

One of SAA’s main strengths is a 55 percent share of the South African market, which also includes contributions from low-cost carrier Mango and SA Express, Jarana said. A merger of the three airlines would help to secure a strong partner, he said, while also contributing to the cost-cutting plan.

“SA Express is still being run as a separate entity by the government with a separate board,” Jarana said. “It has a big strategic role to play.”

Jarana is due to hold talks with a group of domestic lenders about 6 billion rand ($423 million) in outstanding loans, according to Jarana. That could enable auditors to sign off on the company’s latest financial statements, after which SAA can hold an annual general meeting. The AGM will take place before Jan. 28, Gigaba said.

Business Expertise

The CEO, a former executive at mobile-network operator Vodacom Group Ltd., was hired for his business expertise rather than aviation knowledge and will spend the early months of his tenure reviewing all the company’s costs including routes, airplane leases and supply contracts. That process should be finalized by February and will be influenced solely by commercial considerations and not political pressure, he said.

SAA has this year already reduced flights to the South African cities of Port Elizabeth and East London and scaled back routes to Luanda, the capital of Angola, and Kinshasa in the Democratic Republic of Congo.

Working alongside Jarana will be new Chief Restructuring Officer Peter Davies, whose credentials include a turnaround of Air Malta and the startup of Caribbean Airlines Ltd. JB Magwaza was named as chairman in place of Dudu Myeni, who heads the charitable foundation of President Jacob Zuma.

Customer experience, internet connectivity and in-flight entertainment will be increasingly important to ensure travelers choose SAA, the CEO said. The company needs to capitalize on a growing market through its significant network of flights in Africa, he said.

SAA competes mainly with Ethiopia Airlines Enterprise and Kenya Airways Plc in sub-Saharan Africa, while Persian Gulf giants Etihad Aviation Group, Emirates Airline and Qatar Airways Ltd. operate several routes from major African cities to Middle East hubs and on to Asia or Europe.

“If we want to seriously compete against other big players in Africa and Middle Eastern carriers, we need to refresh the product,” Jarana said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Crude Oil Hits $71.34 After Saudi Largest Oil Facilities Were Attacked

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Brent Crude Oil Rises to $71.34 Following Missile Attack on Saudi Largest Oil Facilities

Brent crude, against which Nigerian oil is priced, jumped to $71.34 a barrel on Monday during the Asian trading session following a report that Saudi Arabia’s largest oil facilities were attacked by missiles and drones fired on Sunday by Houthi military in Yemen.

On Monday, the Saudi energy ministry said one of the world’s largest offshore oil loading facilities at Ras Tanura was attacked and a ballistic missile targeted Saudi Aramco facilities.

One of the petroleum tank areas at the Ras Tanura Port in the Eastern Region, one of the largest oil ports in the world, was attacked this morning by a drone, coming from the sea,” the ministry said in a statement released by the official Saudi Press Agency.

It also stated that shrapnel from a ballistic missile dropped near Aramco’s residential compound in Eastern Dhahran.

Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy,” a ministry spokesman said in a statement on state media.

Oil price surged because the market interpreted the occurrence as supply sabotage given Saudi is the largest OPEC producer. A decline in supply is positive for the oil industry.

However, Brent crude oil pulled back to $69.49 per barrel at 12:34 pm Nigerian time because of the $1.9 trillion stimulus packed passed in the U.S.

Market experts are projecting that the stimulus will boost the United States economy and support U.S crude oil producers in the near-term, this they expect to boost crude oil production from share and disrupt OPEC strategy.

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Crude Oil

A Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

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Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

Two residents from the eastern city of Dhahran, Saudi Arabia, on Sunday said they heard a loud blast, but they are yet to know the cause, according to a Reuters report.

Saudi’s Eastern province is home to the kingdom’s largest crude oil production and export facilities of Saudi Aramco.

A blast in any of the facilities in that region could hurt global oil supplies and bolster oil prices above $70 per barrel in the first half of the year.

One of the residents said the explosion took place around 8:30 pm Saudi time while the other resident claimed the time was around 8:00 pm.

However, Saudi authorities are yet to confirm or respond to the story.

 

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Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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