Broke SAA may not be able to pay its workers
• Airline needs capital injection of R13bn over three years • Chairwoman Dudu Myeni to face MPs on Thursday
South African Airways (SAA) has run out of cash and is effectively bankrupt. It is feared it may not be able to pay salaries.
According to a cash-flow analysis provided by the airline to MPs on Wednesday, the stateowned airline went into a negative cash position in July, when it had a net cash outflow of R568m. It projects a further deterioration in the months ahead, with net cash outflows of R936m forecast for August and R918m in September. An improvement to a negative cash flow of R134m is projected for October on the assumption that the airline gets financing and government support of R792m.
DA deputy finance spokesman Alf Lees pointed out that the cash flow projections for September did not include the R6.8bn in loans that SAA is due to repay to its lenders by the end of that month and that it was hoping to renegotiate. Proper accounting principles required this to be included in the cash flow analysis, Lees said.
In terms of documents provided to members of Parliament’s finance committee before a presentation by SAA on Friday, the airline, which relies on a R19bn state guarantee, needs a capital injection of R13bn over three years. It is not clear whether the R13bn includes the R2.2bn that SAA recently received from the Treasury in order to repay a loan to Standard Chartered Bank when the bank refused to extend it.
The Treasury is considering the sale of state assets to fund the airline’s recapitalisation.
SAA chairwoman Dudu Myeni will tell the committee that SAA posted a year-on-year loss of R1.46bn in the first quarter of 2017-18, R71m worse than the matching period last year.
SAA remains without a CEO, with no appointment in sight despite Finance Minister Malusi Gigaba saying he would finalise the CEO appointment by July.
The Treasury said on Tuesday that it had finalised the process of recruiting a CEO and had forwarded its recommendation to the Cabinet for consideration.
But this has raised questions about the effectiveness of the new board in halting the airline’s downward slide.
Gigaba has given the assurance that there would be measures to strengthen the board and appoint a new chairperson in August.
SAA’s quarterly results show that operating costs of R7.7bn have wiped out all the revenue of R7bn even before the R367m in quarterly finance costs were taken into account. This is a clear sign of the inefficiencies and operational difficulties that the airline will have to overcome if it is to become profitable.
Revenue in the quarter was lower than expected and this
had a negative effect on the bottom line. The first-quarter results, which were below target, mean that SAA might fall short of its projected net loss of R853m for 2017-18, which is nevertheless an improvement on the projected loss of R4.5bn for 2016-17.
The struggling airline’s “aggressive” five-year corporate plan, which has been refined with the help of independent aviation experts, assumes a recapitalisation; the agreement by lenders to extend maturing loans for a minimum of three years; the retirement of five wide-body aircraft; and that there will be no exit for any of the narrow-body aircraft. The first two A340-60 wide-body aircraft will be retired in August and in October.
SAA says the success of the corporate plan depends on the assumptions being realised. It forecasts that its corporate plan will generate additional revenue of about R13.6bn over five years through changes to its route network and initiatives to enhance revenue.
Myeni will be questioned by MPs about her attendance at board meetings. There have been media reports about her failure to attend these.