Ailing SAA lands R5bn lifeline from government
Carrier will have to devise plan for turnaround, says Treasury
THE Treasury has issued South African Airways (SAA) with a letter of guarantee for R5bn, allowing it to borrow in the financial markets to buy new aircraft.
This also paves the way for the embattled parastatal to hold its annual general meeting which was postponed last month by Public Enterprises Minister Malusi Gigaba, who had lobbied hard for the additional support.
The lifeline is conditional on SAA working with the Department of Public Enterprises and the Treasury to devise a turnaround strategy, including the development of a financing programme for the airline’s acquisition of new aircraft for its longhaul and short-haul networks.
The Treasury “granted SAA a R5bn guarantee for a period of two years starting from September 1”, the Department of Public Enterprises said yesterday.
“The guarantee will enable SAA to borrow from the financial markets, thus ensuring that the airline continues to operate as a going concern.”
New business plans will be drawn up in consultation with South African Express and SAA franchisee SA Airlink, SAA chairman Vuyisile Kona said yesterday. “Consolidation is the trend globally”, he said, as larger airlines were better protected from the vagaries of a “toxic” market.
“Nothing is cast in stone. What is happening overseas is a game of consolidation; (profitable aviation) is a matter of size. If consolidation takes place or does not will be determined by the business plan,” Mr Kona said.
South African Express has not presented its financial statements for two years because of a collapse in governance and financial controls. There is a strong possibility that the loss-making regional carrier may also require a guarantee from the state.
SAA has 20 Airbus A320s on order to replace the less fuelefficient Boeing 737-800 aircraft used for the domestic and regional markets, and will take delivery of them over the next five years. The airline’s fuel bill accounts for up to 40% of its operating costs.
“We must get the latest aircraft, configure them better and use them on the right routes and make sure they are much more fuel efficient,” Mr Kona said.
“The fuel price is sky high. It is extremely critical that SAA gets fuel-efficient aircraft, otherwise we will get caught up in these issues every year.”
Planning the fleet acquisition would make up much of the work to be done by senior technocrats from the Department of Public Enterprises, the Treasury and SAA, Mr Kona said.
The task team will need to include people “senior enough to make decisions” so that all parties are “on the same page because of the approval process”, he said.
“We have committed to assist in finalising the business plan by January. Hopefully we can then step back when it starts to be implemented,” Mr Kona said.
A condition of the R5bn guarantee is that the plan must be approved by Finance Minister Pravin Gordhan and Mr Gigaba. The task team will also monitor SAA’s financial position.
It is not the first time the airline has needed state support.
SAA received a R1.3bn subordinated loan last year and a R1.6bn “going concern” guarantee to underpin cash requirements after the auditor-general expressed concern about its ability to generate cash.