Treasury guarantee blows wind beneath SA Express’s wings
STRUGGLING airline South African Express (SA Express) has received a government guarantee from the Treasury which will allow the carrier to continue as a going concern and host an annual general meeting, the Department of Public Enterprises confirmed yesterday. SA Express is yet to table financial results for the 2013-14 year after it failed to convince auditors that it was a going concern.
However, the department would not confirm the amount of the guarantee.
Earlier this week the Treasury said it was reviewing the ailing airline’s request for a guarantee and was going through a “thorough and rigorous assessment” before granting the carrier a guarantee.
However, spokesman for the department Colin Cruywagen confirmed that the airline had been granted the requested guarantee. He said that the guarantee came with “stringent conditions”, which Public Enterprises Minister Lynne Brown had agreed to.
Last month the Treasury also gave struggling national carrier South African Airways (SAA) a guarantee of R6.5bn, allowing the airline to convince auditors of its going-concern status and table its financial results, which it previously could not do. Guarantees afforded to SAA have exceeded R14bn.
The Treasury was secretive about whether it had given SAA a guarantee, with Finance Minister Nhlanhla Nene confirming the guarantee to Business Day in Davos, Switzerland, at the World Economic Forum last month.
SAA’s guarantee came with strict conditions including strengthening governance and internal controls, cutting costs, timelines for targeted savings and weekly reports to the Treasury.
The Treasury said it had made similar requests of SA Express but did not go into the details of what the conditions of a guarantee to SA Express might be.
SA Express CEO Inati Ntshanga and the Treasury would not disclose how much the carrier was asking for in government guarantees. But in 2013 SA Express said it needed a guarantee of at least R1.1bn after the auditor-general restated its accounts on request from the then public enterprises minister Malusi Gigaba, as its finances were in a shambles.
The restatement covered three financial years and revealed that equity on the balance sheet had been eroded from R1.1bn to R463m — to the extent that SA Express no longer complied with the lease agreements on aircraft and had breached loan covenants.
Mr Ntshanga said this week the carrier had renegotiated with banks to pay an increased deposit of R123m for Q400 aircraft it leased from Bombardier, instead of having an equity level of R1bn.
Its government guarantee of R539m given to the airline in 2013 expires next week, according to the Treasury. The airline had borrowed against the entire guarantee, the Treasury said.
SA Express reported a modest profit of R650,000 for the 2012-13 financial year, from a loss of R365m the year before, when its accounts were handed over to the auditor-general.
Mr Ntshanga said the airline was working on internal “austerity measures” to bring the airline to “sustainable profitability”. These included renegotiating contracts with technical suppliers such as Lufthansa, moving from its own offices at OR Tambo Airport to SAA offices to cut rental cost about 50% and negotiating a 20% cut in catering costs with suppliers.
He said efforts made internally by the airline and state support would see the airline functioning well within 18 months. The Treasury said it was weighing a merger of SAA and SA Express under SAA’s long-term turnaround plan.
The guarantee came with ‘stringent conditions’, the department said