Publications
Partners
Cape Town – Eight months after proposing a merger between embattled national carrier SAA and SA Express, Finance Minister Pravin Gordhan has announced that Treasury will appoint advisers to explore the opportunity.
“(Public Enterprises) Minister (Lynne) Brown and I have agreed to explore the possible merger of SAA and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner, and to create a bigger and more operationally efficient airline,” Gordhan said in his February budget.
Now, in its mini budget update, Treasury stated that “advisers will be appointed to provide technical assistance as government considers the possible realignment of its airline shareholdings”.
Treasury director general Lungisa Fuzile told media on Wednesday that Treasury believed the right equity partner would open doors for SAA to “take South Africans to Africa and the world and bring Africa and the world to South Africa”.
STAY WITH US AS WE BRING YOU THE LIVE UPDATES: LIVE UPDATE: Pravin Gordhan's mini budget
He said Treasury will explore to see whether SAA in its current structure best suits government’s investment in it. “If the answer is no – which is likely to be the case – then government must make sure SAA as an entity is strong.”
“It will become a possibility at some point to bring on board a strategic equity partner that will bring things to ensure SAA is a financially strong airline,” he said.
A lot of progress has occurred at SAA since February, even if you take into consideration the retention of controversial chairperson Dudu Myeni.
In September 2016, a new, full-strength board was appointed at SAA, Treasury said. “The board has been tasked with returning the airline to financial sustainability, and is required to fill vacant executive management positions.”
It is believed Gordhan persuaded President Jacob Zuma to allow some Treasury-friendly board members to be appointed, while compromising on a few of his allies, like Myeni.
READ: Zuma stands firm on keeping Myeni as SAA chair
After the board appointment, Treasury issued a R19.1bn guarantee facility to SAA. This was “to ensure the company can continue to operate as a going concern”, Treasury said.
But Treasury had harsh words for SAA. “The carrier continues to post losses. There is currently a R14.3bn exposure against the facility,” it said. “Without the guarantees, SAA is technically insolvent.
“A new, full-strength board has been appointed and tasked with returning the airline to financial sustainability. The board has also been tasked with quickly filling vacant executive management positions.”
SAA is one of the main state-owned entities that Treasury is monitoring closely, it said. It pointed to it as one of several state-owned enterprises (SOE) that “could pose risks to the public finances”.
READ: Treasury sounds SOE alarm
Treasury will also not tolerate any requests for further capitalisation.
“Over the medium term, any requests for fiscal support will be informed by the principles set out in the 2015 Budget Review,” it said: This includes that “capitalisation cannot have an impact on the budget deficit”.
Expanding on this, Fuzile said that Treasury “wouldn’t want to throw good money away”.
“Government can’t just give money without reassurances that there is a strong effort made to fix a whole host of things,” he said.
These included a strong board, competent executives, cost cutting and increasing revenues.
He said once SAA had sorted out all its structural issues, then government can seriously look at an equity partner.
* Visit our Budget Special for all the budget news and in-depth analysis.
Read Fin24's top stories trending on Twitter: Fin24’s top stories
