Treasury agrees to R300m SA Express bailout
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
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.