Gigaba in race to delay SAA’s R6.9bn payback

Finance Minister Malusi Gigaba is leading negotiations with some of South African Airways’ (SAA’s) lenders in an attempt to postpone the repayment of loans due in September.

SAA had to find an additional R6.9bn to settle these loans, the airline’s chief financial officer, Phumeza Nhantsi, told MPs on Friday. The loans were due for settlement in July, but the airline managed to convince most of the lenders to defer the payment to end-September.

Standard Chartered Bank was the only lender that demanded immediate settlement, forcing the finance minister to raid the National Revenue Fund to settle the R2.2bn liability. Had SAA defaulted on this loan, it would have triggered a call on the R19.1bn government guarantee of the airline’s debt.

SAA is operating on the basis of this guarantee as it has effectively been bankrupt for a while. The airline is facing a liquidity crisis and is not generating enough cash to cover its costs.

In addition to the R2.2bn bailout, SAA told the Treasury it needed R13bn over the next three years.

The minister would make an announcement on a bail-out in the medium-term budget review in October. Gigaba said strict conditions would be attached to the recapitalisation of the airline.

“There is no way we are going to give SAA money for free,” he said, as this would be throwing money into a “bottomless pit”. He said the SAA board had to demonstrate to the public that the airline was worthy of state support. To this end, the Treasury would exercise intensive oversight as SAA struggled to overcome its liquidity and cash flow crisis.

The “aggressive” implementation of the airline’s turnaround strategy would be central to this oversight. Treasury officials met SAA executives on a weekly basis to assess progress, the minister said. He told MPs the credibility of both government and the airline was at stake, with credit ratings agencies and lenders watching whether it succeeded in implementing its long-term turnaround strategy.

The turnaround plan envisages SAA returning to profit in 2020, after making projected losses of R2.8bn in 2018 and R1.8bn in 2019.

The SAA corporate plan tabled in Parliament showed that R6bn would be derived from external funds in the 2018 financial year. Gigaba said this could possibly come from the Public Investment Corporation,

but other options were also being considered.

SAA had been haemorrhaging cash for years and in July could not pay all its suppliers, said Nhantsi. It had to make arrangements with 20 suppliers to pay on terms.

Nhantsi said the airline was unable to pay all amounts owing at the end of July and instead of paying the lump sums due, the airline was paying amounts weekly as it generated revenue. However, the airline was covering salaries.

To help reduce costs, the airline’s top management had decided to take a 5% salary cut from September, acting CEO Musa Zwane told MPs.

Other measures include ceasing operations on unprofitable routes including the Johannesburg-Abuja route.

This rationalisation would save R900m, while fuel management would save R520m by the end of the current financial year, ending March 2018.

There were quick wins that could be gained on the liquidity front that the board could have taken earlier, the minister said.

“All of these leakages, the internal controls, the governance lapses have got to be addressed as part and parcel of the recapitalisation, otherwise we will be throwing money into a bottomless pit,” Gigaba said.

He repeated that the government would have to sell “noncore assets”. But when EFF MP Floyd Shivambu raised concern that the Treasury would sell the government’s stake in Telkom to bail out SAA‚ the same way it had sold its Vodacom shares in 2015 to free up capital to fund Eskom, Gigaba said: “I have not said we will sell our shares in Telkom. We will look at where we will find the funding for a recapitalisation.”

Chairman of Parliament’s standing committee on finance Yunus Carrim said the committee was “sceptical” about the latest promises‚ as there had been little improvement since 2015. “What has changed?” he asked.