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CEO resignation letter suggests SAA is being forced into administration: analyst

South African Airways chief executive officer Vuyani Jarana quit the financially stricken state-owned company, citing a lack of funding and drop in government support for the carrier’s turnaround plan.

The former Vodacom Group executive was brought in about 18 months ago to lead a recovery at the airline, which has been unprofitable since 2011 and mired in mismanagement and corruption scandals. But a lack of clarity on state funding and the slow nature of decision-making processes persuaded him to resign, according to a letter sent to SAA chairman Johannes Bhekumuzi Magwaza seen by Bloomberg.

“Lack of commitment to fund SAA is systematically undermining the implementation of the strategy, making it increasingly difficult to succeed,” according to the letter. Finance Minister Tito Mboweni has made clear the government is reluctant to approve a further outlay, saying he favors shutting down the company.

Calls made to Jarana’s mobile phone went straight to voicemail. The board of South African Airways said in a statement it had accepted Jarana’s resignation and thanked him for his service. The resignation was first reported by the Fin24 website.

“The SAA board is dealing with the CEO matter,” Pravin Gordhan, minister for Public Enterprises, said by text message.

‘Key Risk’

The move highlights the extent of the challenge facing South African President Cyril Ramaphosa, who has pledged to clean up state companies and restore their financial health as he starts a new five-year term. Ratings companies and the nation’s auditor-general have called the parlous finances of state entities as a key risk to the economy.

Jarana’s announcement follows that of Eskom SOC Holdings Ltd. CEO Phakamani Hadebe, who said he would leave the debt-laden power utility after just 16 months due to the “unimaginable demands” of the job. Transnet SOC Ltd, the state-owned ports and rail operator that’s also been linked to multiple graft allegations, is also looking for a permanent leader.

SAA secured a R5 billion ($342 million) bailout in the October mid-term budget to help it repay loans, but a further commitment hasn’t been forthcoming, according to Jarana’s letter. That’s made it hard to secure cash from outside lenders, and the airline has approached Bank of China and African Export-Import Bank about funding.

Meanwhile a R3.5 billion bridge facility from local banks expires this month, Jarana said.

“The resignation letter appears to strongly suggest that the airline is being forced into administration, deliberately or indirectly, by government,” Peter Attard Montalto, the head of capital markets at research company Intellidex, said by phone from London.

Source: businesstech