Trea­sury agrees to R300m SA Ex­press bailout

Business Day - - FRONT PAGE - Linda En­sor en­[email protected]­nesslive.co.za

The Trea­sury has ap­proved a R300m bailout of strug­gling, re­gional state-owned air­line SA Ex­press, in­terim CEO Siza Mz­imela told MPs on Wed­nes­day. She said SA Ex­press had been “ad­vised” that the re­cap­i­tal­i­sa­tion was ap­proved. The Trea­sury con­firmed that the amount was pro­vided to the air­line through the de­part­ment of pub­lic en­ter­prises. SA Ex­press needs the R300m to keep fly­ing as it has de­pleted its work­ing cap­i­tal and is un­able to bor­row from com­mer­cial banks with­out a share­holder’s guar­an­tee.

The Na­tional Trea­sury has ap­proved a R300m bailout for re­gional state-owned air­line SA Ex­press, in­terim CEO Siza Mz­imela told MPs in par­lia­ment on Wed­nes­day.

SA Ex­press has “been ad­vised” that the re­cap­i­tal­i­sa­tion has been ap­proved, she said. The Trea­sury con­firmed that the amount was pro­vided to the air­line through the de­part­ment of pub­lic en­ter­prises.

“These funds were pro­vided from the con­tin­gency re­serve which was re­vised up­wards to re­spond to pos­si­ble re­quests for fund­ing from state-owned en­ter­prises as per the an­nounce­ment made dur­ing the Fe­bru­ary 2019 bud­get speech,” the Trea­sury said.

SA Ex­press needs the R300m to keep fly­ing as it has de­pleted its work­ing cap­i­tal and is un­able to bor­row from com­mer­cial banks with­out a share­holder’s guar­an­tee.

It was re­ported by Busi­ness Day in Au­gust that fi­nance min­is­ter Tito Mboweni had refused to give the car­rier the guar­an­tee, believing that it should be merged with na­tional air­line SAA and both sold.

The R300m re­cap­i­tal­i­sa­tion would be in ad­di­tion to the R1.2bn SA Ex­press re­ceived in the Fe­bru­ary bud­get, which was ring-fenced to set­tle only the govern­ment-guar­an­teed debt and ad­dress sol­vency is­sues.

Mz­imela said at a re­cent me­dia brief­ing that R300m will be “more than suf­fi­cient to en­sure SA Ex­press op­er­ates ef­fi­ciently with­out run­ning into [fi­nan­cial] prob­lems again”.

Fi­nan­cial chal­lenges dog­ging SA Ex­press saw its flights grounded for one day in Au­gust. In­dus­try sources said this was due to the mil­lions the air­line owed the Air­ports Com­pany SA (Acsa) in air­port fees.

Mz­imela said in a brief­ing to the se­lect com­mit­tee of pub­lic en­ter­prises and com­mu­ni­ca­tions that SA Ex­press is sol­vent.

Pas­sen­ger vol­umes have shown a pos­i­tive trend from Jan­uary to April with the Mthatha route launched in De­cem­ber and the Cape Town base re­launched in Jan­uary.

Mz­imela noted that the current net­work both re­gional and do­mes­tic is per­form­ing well above bud­get with losses stem­ming from the fixed-cost base of the air­line.

Cu­mu­la­tive pri­mary and sec­ondary costs amounted to R240m as at end-May with per­son­nel costs amount­ing to R77m (32%), air­craft leases R44m (19%), fuel R40m (17%), and sec­ondary ex­penses amount­ing to R25m.

The turn­around strat­egy for SA Ex­press in­cludes im­prov­ing cor­po­rate gover­nance, grow­ing rev­enue and re­duc­ing costs, and im­prov­ing op­er­a­tional ef­fi­cien­cies.

Among the fi­nan­cial chal­lenges SA Ex­press ex­ec­u­tives told MPs are the weak bal­ance sheet; long out­stand­ing debts; frozen credit lines; liq­uid­ity; monthly cash burn; and high cost struc­ture.

Cor­po­rate chal­lenges in­clude low staff morale; high staff turnover; high rate of man­age­ment va­can­cies; oner­ous agree­ments and con­tracts; zero ac­count­abil­ity; and a short­age of skills. They said rev­enue shows an upward trend de­spite the many chal­lenges such as un­favourable con­tracts be­ing can­celled or rene­go­ti­ated; air­craft lease costs be­ing re­duced. char­ters be­ing can­celled; and em­ployee costs re­duced.

SA Ex­press, which has a fleet of 22 air­craft, serves sec­ondary routes in SA and re­gional routes to Botswana, Namibia and the Democratic Repub­lic of Congo. It also pro­vides feeder air ser­vices that con­nect with the SAA net­work.

How­ever, only 11 air­craft are regis­tered on the air op­er­a­tor’s cer­tifi­cate com­pared to the 15 ini­tially planned.

Aver­age daily fleet util­i­sa­tion is nine hours and 21 min­utes.

SA Ex­press has been un­able to im­ple­ment a num­ber of new routes due to the un­avail­abil­ity of air­craft. Its man­age­ment is fi­nal­is­ing the right-siz­ing the or­gan­i­sa­tion to en­sure ef­fi­ciency and will no longer ser­vice routes out of Jo­han­nes­burg to Richards Bay, Dur­ban and Ge­orge as they “do not make busi­ness sense”.

Se­nior de­part­ment of pub­lic en­ter­prises of­fi­cial Ed­win Besa said the govern­ment’s pro­posal for the con­sol­i­da­tion of SAA, SA Ex­press and Mango was be­fore the cab­i­net min­is­ters.

THE LAT­EST RE­CAP­I­TAL­I­SA­TION AMOUNT IS IN AD­DI­TION TO THE R1.2BN RE­CEIVED IN FE­BRU­ARY

/Rus­sell Roberts

Fly­ing on: SA Ex­press in­terim CEO Siza Mz­imela says the R300m bailout will en­sure that the air­line op­er­ates ef­fi­ciently with­out run­ning into fi­nan­cial prob­lems again.

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