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SAA optimistic about loan obligations - CEO

Jun 19 2017 19:33
Carin Smith

Cape Town - South African Airways (SAA) has made significant headway in putting together a comprehensive and robust 5-year business plan aimed at addressing the current and long-term challenges and to bring more efficiencies and financial stability, the airline said in a statement issued on Monday.

This came after reports that Standard Chartered Bank has declined to renew SAA's loan facilities and that repayment of these loans has been demanded, according to the DA, which said in a statement that, according to a repayment schedule, SAA has listed R8.887bn repayable in 2017/18.
 
SAA said in its statement that the leadership of the airline is "alive to liquidity and solvency challenges" that face the business and has taken steps to ensure that the airline remains in business.
 
"SAA has a weak balance sheet, relies heavily on government guarantees to remain operational and has not been profitable in the last few years. The situation is not only undesirable but unsustainable and this led to the development of the turnaround plan that has been put in place," according to the SAA statement.
 
The plan is anchored on five main pillars that identified areas on which the business must focus as necessary interventions to set a foundation to lead to commercial sustainability. The plan has a liquidity pillar which makes certain recommendations for implementation.  
 
“SAA has been in contact with its lenders to renegotiate the management of its loans, a normal occurrence when loans become due and payable. The airline has government guarantees totalling R19.1bn. By 30 June, R9bn will be due and payable and only one lender has expressed a desire to have its loan paid back.
 
“We remain optimistic that the company will meet its loan obligations as these become due through negotiations with lenders and other initiatives,” said Musa Zwane, SAA acting CEO.
 
SAA said engagements with lenders remain sensitive and confidential and it would be unwise to share salient details with third parties.
 
“The renegotiation of the terms of the loans are ongoing and SAA is optimistic that the airline will continue to operate, honour its obligations to its customers, suppliers and partners,” said Zwane.

READ: SAA's losses balloon to R4.5bn  
 
The work on the plan started in earnest in January 2017 and is overseen by the board of directors working together with executive management. One of the international airline turnaround consultancies, Seabury Consulting, has been brought on board to assist the local teams in finalising and validating specific initiatives contained in the plan, according to SAA.
 
The details of these initiatives will be announced once the plan has been approved by the shareholder representative, which is National Treasury.

Alf Lees, DA shadow deputy minister of finance, said in a statement earlier on Monday that if SAA has failed to repay some of its government backed loans, it could force other creditors to recall their loans, which would then necessitate the government to step in and pay.

"This money would ultimately be taken from the public purse and could have dire consequences for the sovereign rating status of South Africa," said Lees.

In his view, the only way out of the "mess" SAA is in, would be to apply for business rescue so that robust cost reductions can be implemented.

"A successful business rescue and the prevention of the government guarantees being called in would have to lead to a full, or at very least a majority privatisation of SAA in order to for SAA to survive in the long-term and, importantly, to release the South African taxpayer from ever having to meet the R19.1bn government guarantees," said Lees.

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