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SAA shouldn't rely on bailouts, Parliament hears

Nov 15 2017 12:02
Carin Smith

Cape Town – Government guarantees to South African Airways (SAA) should not be viewed as an easy option to avoid managing risks as currently appears to be the case, the Financial and Fiscal Commission (FFC) on the SAA debt relief and recapitalisation said on Wednesday.

These guarantees should not be taken for granted and become a default response position, it told Parliament’s standing committee on appropriations.

“Given that guarantees are not exposed to the same level of scrutiny in the budget process as regular spending, the commission advises oversight mechanisms of guarantees should be strengthened to reduce the risk of unintended consequences from materialising particularly at National Treasury…,” the FFC told the committee.

“The commission is concerned that this bailout will create the perception that SAA – and other public entities – can count on government to support it when faced with financial troubles.”

According to the FFC, the reasons for SAA’s losses include tough competition, poor fleet fit for purpose, operational inefficiencies and managerial challenges. It regards interventions as superficial and not addressing underlying core reasons.

In the view of the commission SAA should renegotiate contracts (network arrangements, leases and fleet structure); sell non-strategic assets such as the Airlink stake that the FFC regards as undercutting SA Express; continue to aggressively pursue the outsourcing of non-core services; and stop operating on non-performing routes.

It also suggested SAA must have strict procurement controls; right size the staff complement; have aggressive cost containment; stabilise executive and senior management and aggressively expand on strategic domestic and international routes.

The airline should also deal with competitive pricing, exchange rate fluctuations, oil price fluctuations and fleet fit for purpose issues.

According to the FFC, long-term loans by SAA reached R12.7bn in 2015/16 with R6.2bn of total long term loans expected to reach maturity within a year. Given the poor financial health of SAA, financiers have been reluctant to extend the maturity date of loans, resulting in government intervention to keep SAA afloat.

At the end of June this year government helped SAA by paying R2.2bn owed to Standard Chartered Bank and R1.76bn to Citibank in September via the National Revenue Fund. SAA also received R1.2bn for immediate working capital requirements.

Alf Lees of the DA, told the FFC delegation that it is unclear whether SAA ever paid over the R1.76bn it received from government to Citibank. He also said banks have been bending backwards to accommodate SAA in the past.

In the view of Lees, SAA is bankrupt and, therefore, trading recklessly.

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