Crippling cash crunch hits SAA

The airline is in dire financial straits and the situation continues to deteriorate.

There’s considerable doubt that SAA will be able to pay staff and suppliers in June.

South African Airways (SAA) is in dire financial straits. Reports emerged over the weekend that institutions have begun calling in its debts, as the airline’s financial position continues to deteriorate.

Moneyweb has learnt from sources that the airline resorted to paying managers’ salaries on May 25 from a VAT refund it had received, while the rest of staff were paid on May 27 from a loan.

There’s doubt as to whether SAA will be able to pay staff and suppliers this month.

Moneyweb enquired with a large SAA supplier to see if there had any been any non-payment or delays of goods and services. At this point, the airline is within its credit terms (30 days).

We’ve heard for some time that the Public Investment Corporation (PIC) is putting a recapitalisation plan together.

We continue to hear from unconfirmed reports that this is the case, despite the Government Employee Pension Fund (GEPF) – the PIC’s biggest source of funds – issuing a statement denying this last month.

It maintains its stance: “GEPF’s position with regards to funding SAA still stands as per the media statement issued by the fund. However, if there are any changes the GEPF will engage with the PIC on this matter as we always do.”

Last week we directly asked Finance Minister Malusi Gigaba whether the PIC was drafting a recapitalisation plan for the airline. He didn’t refute the statement directly. Instead, he said: “We are looking at ways to recapitalise it. This will be linked to [restoring] good governance.

“We will ensure they implement the turnaround strategy. The new CEO will be responsible for that.

“We are going to be tough with SAA. They will need to demonstrate they are prepared to regain the confidence of the public.”

According to the DA, SAA’s listed R8.88 billion repayable in the current financial year, but some of these dates have already passed.

“All of SAA’s loans are backed by government guarantees that now amount to R19.1 billion,” wrote the DA’s Alf Lees on the party’s website this weekend.

The uncertainty over SAA’s position could in effect create a “bank run”. As airline’s fiscal position is made public, lenders could start demanding immediate repayment of loans.

This means the state or a related party involved in the recapitalisation (like the PIC) would take over debts.

The entity then becomes completely dependent on the fiscus for support, which means Treasury may have to write a cheque in the next few days to keep suppliers from taking the airline to court, and having it placed in business rescue.

We submitted questions to SAA and the PIC early yesterday and hadn’t received a response at the time of publication.