Seems SAX has run out of ap­peal

Fi­nan­cial losses con­tinue and sub­sidiary air­line will also be merged

The Sunday Independent - - BUSINESS REPORT - Siyabonga Mkhwanazi

THE FI­NAN­CIAL woes of the whol­ly­owned SAA sub­sidiary South African Ex­press (SAX) came to the fore this week when the small air­line posted a loss of R726 mil­lion dur­ing the fi­nan­cial year 2016.

A re­port by SAX di­rec­tors said the losses con­tin­ued even af­ter it had made some cost-cut­ting mea­sures.

“The com­pany was granted an ex­ten­sion on the ex­ist­ing guar­an­tee of R539m re­lat­ing to covenant breaches and work­ing cap­i­tal as well as an ad­di­tional guar­an­tee of R567m for the fu­ture work­ing cap­i­tal and as­set-based fa­cil­i­ties,” said the re­port.

It said the guar­an­tee was re­duced by R100m in March last year and there were con­di­tions at­tached to the guar­an­tee.

The guar­an­tee was fur­ther re­duced by R58m in February this year.

“In March 2017 ap­proval was ob­tained to utilise the R121m per­pet­ual guar­an­tee. The amor­ti­sa­tion pe­riod was also ex­tended from five to seven years,” said the re­port.

SAX said it would con­tinue to op­er­ate as a go­ing con­cern with a per­pet­ual guar­an­tee.

The gloomy SAX pic­ture comes as SAA face more pres­sure from lenders with Citibank on Fri­day an­nounc­ing that it would re­call its R1.8 bil­lion loan with the na­tional air­line.

A few weeks ago, Stan­dard Char­tered Bank re­fused to ex­tend its R2.2bn loan and de­manded re­pay­ment, send­ing the Na­tional Trea­sury into a scram­ble to pay the loan in or­der to save the na­tional car­rier.

SAA has a to­tal loan book of R6.78bn that ex­pires at the end of Septem­ber.

The air­line told Par­lia­ment this week it was hop­ing the loans would be ex­tended as DA MP Alf Lees claimed there was a cab­i­net mem­o­ran­dum that con­tained a se­cret pro­posal by the govern­ment to sell its Telkom stake in or­der to raise R10bn to fund SAA.

On Fri­day, Fi­nance Min­is­ter Malusi Gi­gaba con­firmed the govern­ment was ex­plor­ing op­tions to es­tab­lish a proper cap­i­tal struc­ture for the air­line.

Gi­gaba told the chief ex­ec­u­tive of­fi­cers’ ini­tia­tive steer­ing com­mit­tee that the Na- tional Trea­sury had put to­gether sev­eral pro­pos­als which had been given to cab­i­net for con­sid­er­a­tion.

He said the pro­posal had not been fi­nalised and cau­tioned against “any hys­te­ria cre­ated by our con­sid­er­ing of var­i­ous op­tions. At the present mo­ment what is a fact is that there is a R10bn re­cap­i­tal­i­sa­tion that is re­quired for South African Air­ways but the model of that re­cap­i­tal­i­sa­tion is not yet fi­nalised.”

The fi­nan­cial woes of SAA and SAX strength­ened the re­solve to merge the en­ti­ties.

SAX said it had im­ple­mented some cost-cut­ting mea­sures and would con­tinue to do so for the fore­see­able fu­ture.

The com­pany said it still had ac­cess to cash and would con­tinue to op­er­ate.

“The com­pany has pos­i­tive eq­uity in­di­cat­ing the com­pany is sol­vent. Pos­i­tive eq­uity is driven by the rais­ing of long-term fund­ing of R121m, prof­its for the year and the re­duc­tion of cap­i­tal ex­pen­di­ture,” said the re­port.

SAX said its abil­ity to con­tinue as a go­ing con­cern was de­pen­dent on, among other is­sues, di­rec­tors find­ing cash for the on­go­ing oper­a­tions.

This week in Par­lia­ment Deputy Pres­i­dent Cyril Ramaphosa said the govern­ment would go ahead with the merger of SAA with SAX and Mango in or­der to save the state money and to strengthen the bal­ance sheets of the air­lines.

Ramaphosa did not, how­ever, give any in­di­ca­tion of how soon the merger would be com­pleted.


Pas­sen­gers board­ing an SA Ex­press air­craft at the OR Tambo In­ter­na­tional Air­port.

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