SAA will need more funding to cover costs
• Recent Treasury bail-out will not cover bankrupt airline’s operating costs until the end of March 2018
The R1.2bn that SAA received from the Treasury for working capital on Friday is only half of what it needs until the end of March to keep operating as it is not generating enough cash to cover its costs. SAA’s ongoing need for working capital means that further funds are likely to be allocated to the bankrupt airline when Finance Minister Malusi Gigaba tables his medium-term budget in Parliament on October 25.
The R1.2bn South African Airways (SAA) received from the Treasury for working capital on Friday is only half of what it needs until end-March because it is not generating sufficient cash to cover its costs.
In addition to the R1.2bn for working capital, R1.8bn was transferred to SAA so it could repay its loan to Citibank that expired on Saturday and which the bank decided not to extend.
SAA’s continuing need for working capital means further funds are likely to be allocated to the bankrupt airline when Finance Minister Malusi Gigaba tables his medium-term budget policy statement in Parliament on October 25.
In addition, the Treasury has to regularise the R2.2bn payment made to SAA in June so it could repay the loan from Standard Chartered Bank.
In a recent reply to a parliamentary question, the minister disclosed that SAA’s working capital requirements had been calculated at R2.5bn until the end of March.
SAA, which has projected negative monthly cash flow of hundreds of millions of rand, has asked for a R13bn recapitalisation over three years. It has received R5.2bn in 2017.
The Treasury said the R3bn transfer from the National Revenue Fund to SAA was needed so it could meet its debt obligations and avoid a default.
In total, R6.8bn in loans matured on Saturday, but the Treasury managed to get most of the lenders to roll them over. It is not clear for what period the loans were extended.
SAA was pushing for a threeyear extension, but it is unlikely this has been granted by the lenders, given the precarious state of the airline’s finances.
“This payment was done in terms of section 16 of the Public Finance Management Act. This section of legislation states that the minister can authorise the use of funds to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future parliamentary appropriation of funds. The due process laid out in the legislation will be followed,” the Treasury said.
“Given the nature of the problems at SAA, section 16 of the PFMA [the act] had to be used as the last resort.
“A default by the airline on the R3bn would have triggered a call on the guarantee exposure totalling R16.4bn, leading to an outflow from the National Revenue Fund and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt,” it said.
SAA has state guarantees amounting to R19bn.
The Treasury said that improving SAA’s financial positions through a recapitalisation had been on the government’s agenda for a while.
Several options were being explored and an update on this would be provided during the minister’s medium-term budget policy statement.
The appointment of a permanent CEO, Vuyani Jarana, who will take up his role on November 1, “marks a critical step in ensuring that the airline’s turnaround strategy is implemented”, the Treasury said.
Appointments to fill other critical executive positions would follow shortly.