No financial fuel, no go?
Mired in a procurement scandal, SA Airways has almost eaten away the financial cushion it had from national treasury. The airline has only R99m left of the R6bn guarantee it was given in January 2015.
SAA’s rushed attempt to raise billions of rand in new debt is an indication of the effective war of attrition treasury has waged against it.
The airline’s clumsy and apparently unlawful contracting of advisory firm BnP Capital to raise funds urgently is evidence of the panic created after the money spigot was tightened by finance minister Pravin Gordhan. SAA asked the little-known BnP to find R7.3bn urgently in exchange for an alleged “success fee” payment of R256m. The procurement process was deeply flawed.
In a rare break from treasury’s usual silence on SAA, Avril Halstead, a chief director at the department, told the Financial Mail this week that of the total guarantees granted to the airline worth R14.39bn, as much as R14.29bn had been utilised.
“National treasury continues to monitor the performance of the airline on a regular basis; review significant transactions (as defined in terms of Section 54 of the Public Finance Management Act and SAA’s materiality and significance framework); and support the airline in the rollover of its funding,” she wrote in an e-mail.
In his February budget speech last year former finance minister Nhlanhla Nene said SAA had been given guarantees worth R14.4bn, of which R8.3bn had been drawn, suggesting the guarantee SAA received was closer to R6.1bn than the R6.5bn which was reported at the time.
A rough calculation of the utilisation of this guarantee over the past 18 months suggests that the airline has used an average of about R340m/month. What remains of the guarantee seems hopelessly insufficient.
When asked if the nearly depleted guarantee was enough to support SAA’s operations, airline spokesman Tlali Tlali said: “SAA is still able to pay its creditors as and when they are due . . . We continuously monitor and assess our cash situation and we know what the factual situation is right now.”
But the airline is on its knees and treasury, for now, appears to be happy for the public to know how serious the situation is.
Gordhan has been unable to act against the airline. SAA seems to have become a personal interest project of President Jacob Zuma, who is a close friend of SAA chair Dudu Myeni. She has repeatedly involved herself in the daily operations of the airline, overruling executive decisions, changing board resolutions and breaking the rules of corporate governance.
Gordhan has refused to give SAA the R5bn it has requested in order for it to continue trading as a going concern until he is able to appoint a board that is fit for purpose and able to work with executives to implement the airline’s turnaround strategy.
There has been a political stand-off over who will sit on the board. In the meantime the decisions driven from the SAA boardroom have continued to take a heavy toll on the airline’s reputation and staff morale.
Halstead says: “Treasury recognises the need to have a full-strength board with the full range of skills required to oversee the turnaround of the airline and is working to advance the process for appointing such a board.”
Halstead, who has worked closely with SAA and its turn-around plans for the past three years, has given some insight into the operations of the airline.
Asked whether they communicate and what the quality of their relationship is, Halstead says Gordhan and Myeni have met “from time to time” and “also communicate by phone”.
She says: “These are professional discussions which are used to clarify matters between the shareholder and the entity.”
It is an open secret that Gordhan and Myeni are not on friendly terms.
The state of the airline’s balance sheet over the past 24 months has made bankers wary, and the cost of its debt is high.
SAA has not been able to publish its annual financial statements for the past two years because it has not been able to convince treasury to give it another guarantee. It needs the guarantee for its auditors to sign off on its accounts with the assurance that it remains a going concern.
Last week treasury asked parliament to give it a fifth extension, until September 15, to allow it to finalise the financial statements for both 2014/2015 and 2015/2016.
Asked why yet another extension is needed, Halstead says it is to allow for “careful consideration to be given to the issuance of the guarantee” because of the “potential [negative] implications for the sovereign [SA’s credit rating] and for the economy”.
Earlier this month the lobby group Organisation Undoing Tax Abuse (Outa) demanded that SAA halt the contract with BnP because of the flawed procurement process and the great expense that would be incurred. It also said BnP Capital had had its licence suspended by the Financial Services Board (for not being “fit and proper”) at the time it was contracting with SAA, which Outa legal director Ivan Herselman said amounted to fraud.
He says SAA has not responded in a “sufficient way” to the demands made by Outa to set aside the agreement with BnP.
It is increasingly likely that the matter will go to court.