SAA going from bad to worse
SOUTH Africa is under increasing pressure to enforce changes at the country’s loss making state-owned airline after the carrier lost access to a short-term credit facility from Citigroup, exacerbating an already weak financial position.
The US bank cancelled a R250 million banking facility for South African Airways (SAA) on December 24, Johannesburg-based Moneyweb reported on Monday, citing an internal airline document.
As a result, SAA may not have access to free cash as of Friday, the report said. SAA spokesman Tlali Tlali confirmed the withdrawal of the Citigroup facility and said the company is preparing a statement on the implications for its cash flow.
SAA has been surviving on about R14bn of governmentdebt guarantees and last posted a full-year profit in 2011. The company, which has requested a further guarantee from the National Treasury, has had seven acting or permanent chief executives in less than four years.
“SAA is in a very, very precarious financial position – it is technically insolvent,” said Joachim Vermooten, a Pretoria-based independent transport economist who says the carrier should cut unprofitable capacity. “Fundamentally that situation can’t continue.”
63 aircraft
SAA carried 9.3 million passengers to, from and within South Africa during the 12 months ended March 2014, according to its most recent annual report, published in January last year. Its fleet at the time stood at 63 aircraft, including eight operated by lowcost unit Mango Airlines.
Fund-raising options include the sale of Mango, which is profitable, and the carrier’s SAA technical maintenance division, Vermooten said. Last year, the company closed unprofitable routes to Beijing and Mumbai and renegotiated supply contracts as part of a costcutting plan.
South Africa’s National Treasury is working with SAA to ensure the company has enough liquidity to continue operations, Phumza Macanda, the Pretoria-based ministry’s spokeswoman, said on Monday. A process to appoint a new board is under way, she said yesterday.
SAA’s board reports to Finance Minister Pravin Gordhan, after responsibility for the airline was transferred from the Public Enterprises department just over a year ago. Among Gordhan’s first public moves after his appointment last month was to order SAA to conclude a plane-leasing transaction with Airbus Group, overruling an attempt by chairwoman Dudu Myeni to instead lease the aircraft from a third party.
While SAA still had room for about R3bn of borrowings under its going concern guarantees, the airline was struggling to raise funds because lenders were wary of assuming further risk, according to an internal November 6 memo compiled by the company’s head of legal risk and compliance, Ursula Fikelepi. The memo was first reported by Moneyweb. – Bloomberg