Govt: Explain yourself, SAA

Cape Town - Lesetja Kganyago, the director general of the Treasury, was quite blunt about it. He told the finance committees of parliament that the Treasury was tired of answering for the sins of South African Airways.

"They must answer for themselves," he said at a meeting on Thursday to discuss the budget presented by Trevor Manuel in parliament on Wednesday.

Members of the committees were keen to question the decision announced in the budget to lend R1.6bn to the airline, and wondered what conditions if any were set, and whether or not the airline would be back again in another 18 months to ask for more. They agreed that SAA should be called to testify.

Kganyago reminded MPs that SAA had received support in a 2007 special appropriation and in answer to questions from members said that the condition for the current support was vigorous implementation of the turn-around plan.

But he added: "I have been long enough in the Treasury to know that they will come again for more."

The publication of the Estimates of National Expenditure 2009 (ENE), which was issued with the budget documents on Wednesday, said however that that the SAA restructuring plan has already proved to be successful.

"It was envisaged that the restructuring exercise would be completed within 18 months," the ENE said. "The turnaround plan has been successful in reducing costs, and at the end of 2007/08 operational performance improvements resulted in a profit of 123 million rand before restructuring costs.

"By mid-2008/09, the target had been exceeded by 36%. However, South African Airways did not achieve its profit margin target due to the worldwide economic downturn in the first quarter of 2008, which affected traffic volumes, fuel pricing and hedging, and exchange rates.

"In 2008/09, a guarantee was issued for South African Airways to raise subordinated loans amounting to 1.5 billion rand. This guarantee was provided to fund the costs of B747-800 aircraft groundings, but proved insufficient to resolve the financial implications of the airbus contract and the increased liabilities relating to the international financial reporting interpretation committee's 13 customer loyalty programmes.

"South African Airways' financial position was thus not sufficiently strengthened to be in line with industry norms."

However the ENE book said that SAA has met cost reduction targets and made operational improvements.

"It also identified initiatives that were not outlined in the initial restructuring plan, resulting in a 36% above target performance by the middle of 2008/09. The recent reduction in fuel prices is beneficial to South African Airways, but the global economic slowdown and increase in foreign exchange rates will have a negative impact going forward. The lower and more sustainable cost level will, however, enable South African Airways to take advantage of improvements in the economy when these arise."

- I-Net Bridge