Forget business rescue
SAA: THE TIME HAS ARRIVED TO SWITCH OFF THE LIGHTS AND START AFRESH
The airline loses money on every domestic and most international routes.
South African Airways (SAA) needs R5 billion, now. That’s what CEO Vuyani Jarana told Parliament’s Standing Committee on Public Accounts (Scopa) on April 24.
The R5 billion is in addition to the R10 billion it got from the fiscus in the previous financial year to restore its status as a going concern.
And that’s nowhere near the end of it.
According to deputy finance minister Mondli Gungubele, SAA needs at least R20 billion to break even by 2021.
To give a sense of scale, it cost about R27 billion to construct the Gautrain system. R21 billion is allocated in the 2018/19 Mpumalanga provincial budget for education and 43% of the total provincial budget.
At an operational level, SAA loses money on every domestic and most international routes. In the first nine months of 2017/18 its loss was 71% above budget at R3.7 billion. Operating costs increased. Revenue and passenger numbers declined. Expenses exceed income by R370 million per month.
To be profitable and compete with its peers, it needs new aircraft. It can’t buy new aircraft, as nobody will lend it money due to its weak balance sheet. Jarana called it a “catch 22”.
Solidarity is planning to apply to the high court to place SAA in business rescue, on May 15, in an effort to prevent SAA from being liquidated. Solidarity believes SAA can still be saved and with it, a few hundred of its members’ jobs.
Free Market Foundation’s Leon Louw differs sharply. He says the only viable options are liquidation or privatisation. It’s too late to “rescue” SAA, he says.
“Bailing out SAA is financially reckless and irresponsible. The scale of the amount of money required is so gargantuan that it can never be fixed and it will never be a going concern able to compete in the world of modern aviation.”
SAA’s troubles are nothing new.
In 2015 acting CEO Thuli Mpshe and legal counsel Ursula Fikelepi advised the SAA board that it was financially distressed, trading under insolvent circumstances and therefore trading recklessly. The board should apply for business rescue or liquidation, they stated.
Moneyweb has seen a board resolution in September 2014 and signed by seven of the 11 board members, that SAA would proceed with business rescue proceedings unless government committed to providing a going concern guarantee within a week.
Transport economist Dr Joachim Vermooten says the court would only grant Solidarity’s apSouth plication if it could show there’s a reasonable prospect of rescuing the group.
It’s late in the day for SAA, Vermooten says.
The Auditor-General has said it’s not a going concern. Vermooten adds that besides the required amounts provided to Parliament, no number has yet been put to the turnaround plan.
Proper restructuring would require additional funds for SAA to buy out onerous agreements and employment contracts.
Vermooten says it’ll be more efficient to wind down SAA in its current form and start a new, focused airline.