SAA lands R3.5bn to stay afloat until June
National carrier urges government to make a speedy decision on future financial support
SAA, which has secured the R3.5bn it required from banks to continue financing workingcapital requirements until June, has urged the government to make a speedy decision on future financial support.
The cash-strapped airline requested R21.7bn from the government in 2018 to recapitalise its balance sheet and provide working capital. This forms part of its three-year turnaround plan, which it said would see it break even by the 2020/2021 financial year. It suffered a R5.7bn loss in 2017/2018 and expects to lose another R5.2bn in the current financial year.
While the government has approved the turnaround plan, only R5bn was provided for in the medium-term budget policy statement in October 2018.
This was used to pay bridgefinancing facilities.
The carrier’s plea comes ahead of finance minister Tito Mboweni’s budget speech on Wednesday, when he is also expected to unveil a package for Eskom, whose financial crisis is seen as the biggest threat to the country’s economy. In comments that drew a sharp reaction from SAA CEO Vuyani Jarana, Mboweni has previously said the country would be better off closing the airline rather than throwing money at it.
“The key is to get certainty,” acting CFO Deon Fredericks said at a briefing.
Because of SAA’s uncertain future, banks remain reluctant to provide long-term debt, which would be cheaper than the short-term financing SAA relies on. The lack of clarity has also led suppliers and creditors to impose stricter payment terms on the airline, placing further pressure on its already precarious cash flow situation.
The uncertainty had also limited its ability to hedge its exposure to currency and oil price fluctuations, a major cost driver, SAA said.
The Treasury declined to say whether any provision for support was made in the budget.
Joachim Vermooten, a transport economist and research associate at the University of Johannesburg (UJ), said cutting SAA’s losses from about R5bn to R6bn a year to breakeven by 2021 required an improvement of about R3bn for 2020 and another R3bn for 2021.
“They’ve implemented a lot of small actions, but it remains to be seen if that will add up to get to such a huge improvement.”
Fredericks said negotiations had started with banks to extend the payment terms of a R9.2bn debt due at the end of March, while a further R4bn was required for working capital for the 2019/2020 financial year.
The R3.5bn loan funding, secured on February 15, was offered at lower interest rates
than a year ago, indicating improved confidence levels from lenders, he said. All of SAA’s debt of R12.7bn is guaranteed by the government.
Ideally, an airline of its size should have debt of about R4bn to R5bn, highlighting the need for SAA’s balance sheet to be recapitalised in order to improve its ability to compete.
Should the full required amount not be provided by the government, the airline would adjust its plans, Jarana said.
In the six months to September 2018, SAA had beaten its targets in the turnaround plan on revenue and operating costs and had reported a smaller net loss than expected. Part of its turnaround efforts included the scrapping of one Johannesburg Heathrow flight, which allowed the route to earn a gross profit for the first time in a decade.
A new supply chain policy has already realised cost savings of R299m, while improvements have been made at SAA Technical and on domestic, regional and other international routes.
A new organisational design, built around three key operational areas with their own management teams — domestic, regional and international — should be completed by the end of March. It was premature to say how this could affect staffing levels, human resources director Vuyi Raseroka said.
SAA group, which includes the airline, its technical division and catering business Air Chefs, employs about 9,500 people.
UJ’s Vermooten urged open and accelerated discussions between the airline and government about the future funding.
R12.7bn SAA’s debt, which is guaranteed by the government