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SAA to get R5.5bn capital injection by end September

Sep 18 2019 19:34
Lameez Omarjee, Fin24

South African Airways says that a R5.5bn capital injection approved by Treasury for the 2019/20 financial year is expected to be transferred by the end of September.

SAA board members, including Acting CEO Zuks Ramasia, briefed the portfolio committee on public enterprises on progress made in addressing its governance challenges.

The briefing centred on SAA's long-term turnaround strategy, which was originally crafted in 2013 and lays out a plan for SAA to break even by 2020/21. A capital requirement of R21.7bn is needed for the plan, so far R5bn recapitalisation was approved in 2018/19 and another R5.5bn was approved for 2019/20.

However, the implementation of the plan has proven to be difficult, members of Parliament heard. Ramasia said this is mainly due to external and internal factors. Internal factors relate to the erosion of skills at the airline and leadership disruptions.

Earlier this year CEO Vuyani Jarana resigned over uncertainty about future funding that were delaying the implementation of the airline's turnaround strategy.

Further to the challenges, SAA has struggled to service its debt, which stands at R12.7bn. Of this, R9.2bn is legacy debt and R3.5bn is a working capital facility, the board highlighted on Wednesday.

A portion of the 2019/20 funding allocation will be used to repay the R3.5bn working capital facility and R2bn will be used to meet the airline's working capital requirements.

SAA still requires an additional R2bn by December 2019, to fund working capital for 2019/20. The airline is in negotiations with lenders to avail the R2bn for working capital. Lenders, however, have put forward conditions – such that the short-term funding of R3.5bn be repaid this month (this is already addressed). Lenders also require a debt reduction and payment plan for the legacy debt of R9.2bn.

Challenging year

The committee heard that despite the current state of the airline, there is still an investment case for government to continue supporting SAA. Deputy Minister of Public Enterprises Phumulo Masualle noted that it had been a challenging year, so much so that recapitalisation from Treasury was needed to repay maturing loans.

Masaulle said the state has to ensure that the value of assets under its custodianship is improved. While government, as the shareholder, is working to ensure the airline becomes profitable in the medium to the long term, consolidation of aviation assets is also being considered for the airline's sustainability, he said.

A review is taking place, but consolidation would have to be in line with competition law, until a decision has been made about what will be done with aviation assets government will then give feedback to Parliament about it.

Cost of shutdown 'staggering'

Last week a representative of the Department of Public Enterprises told the select committee on public enterprises that a consolidation plan of airlines SA Express, Mango and SAA is to be submitted to Cabinet this week.

Responding to a question about whether SAA is still salvageable, executive director Akhter Moosa told the committee that ultimately it is up to the shareholder - namely government - to decide to liquidate the airline; however, shutting down the entity will come at a "staggering" cost.

"The board received a mandate from the shareholder to turn around the entity. We will try our utmost to turn around the entity," he said.

saa  |  governance  |  public enterprises
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