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SA Express seeks urgent bailout despite wasteful spend

Aug 30 2017 13:54
Liesl Peyper, Fin24

Cape Town – Like its cash-strapped feeder airline South African Airways (SAA), South African Express also needs urgent recapitalisation to stay afloat.

“We want to recapitalise SA Express and we’re asking National Treasury to help us to do so,” Public Enterprises Minister Lynne Brown told Parliament on Wednesday.

The board and management of SA Express appeared before Parliament’s standing committee on public accounts (Scopa) to explain the irregular, fruitless and wasteful expenditure of R35m it incurred in the 2015/16 financial year.

The unaudited results for the 2016/17 financial year showed that SA Express made a R234m loss in the 2016-17 financial year after a R16.9m profit the previous year.

Brown, who attended the first part of the hearing before going to the fortnightly Cabinet meeting, made some introductory remarks, explaining that the airline operates with a very small number of aircraft and that urgent recapitalisation in this respect is needed.

“The auditor general said in the 2015/16 annual report that the shareholder (the Department of Public Enterprises) needs to step in to recapitalise SA Express,” Brown said.

She conceded that the way in which the country’s state-owned airlines are structured at the moment, including the business model, is not making sense.

SAA, SA Express and Mango are state-owned entities, while SA Airlink is a privately-owned airline of SAA.

“SAA’s code share is intended to be used by all four airlines. They all go on the same routes. We haven’t looked at how we structure them to create better competition and take passengers where they need to go. All those airlines shouldn’t compete for the same things,” Brown said.

She said the airlines need to be moving towards an “optimal corporate structure” that will be in line with SAA’s long-term turnaround strategy.

Similar to SAA, SA Express will also undergo a rationalisation of routes and scrap those that are not financially viable.

“It’s only when you have all airlines in one stable (that) you can make decisions about which routes to go where. I can’t comment on SAA’s routes, but SA Express routes will also need to be rationalised,” Brown said.

No intent to privatise SA Express

She stressed that there is no intent to privatise SA Express. “It plays too big a role as a training ground of aviation players.”

South Africa’s airlines however are highly subsidised by government, Brown said, which places a significant strain on the fiscus.

“The answer is how we rationalise the three companies and bring in a 25% shareholder to help us with management and finances.”

Brown did not elaborate on details about the 25% equity partner, but it is believed that the Public Investment Corporation (PIC) will step in as an equity partner to help finance the ailing national carrier.

The possibility of PIC funding is however a controversial one and trade unions have vehemently opposed the notion, with the National Health Education and Allied Workers Union saying it won’t allow “hard-earned pension money” to finance the embattled airline.

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