Treasury drafts R10bn special appropriation bill for SAA bailout - As it happened

Treasury drafts R10bn special appropriation bill for SAA bailout

National Treasury has drafted a special appropriation bill to recapitalise SAA with a R10bn bailout, which it hopes to table in a special parliamentary sitting.

As parliament is set to go into recess until mid-October, National Treasury director general Dondo Mogajane (pictured) said Treasury will have to plead with parliament to vote on this in an urgent basis.

“We hope parliament will accede to that,” he said. “We will have to appeal to parliament for the possibility. If there is no possibility, we will have to look to Plan B.”

“We have to go cap in hand to Parliament to consider this,” he said. Mogajane said the bill could not be linked to the proposed sale of government’s 39% stake in Telkom, which could raise about R14.4bn.

“We are not going to link the two,” he said. SAA has R6.785bn in government guaranteed debt, some of which has to be paid by the end of next month. This includes R1.761bn that is due to Citibank at the end of September 30.

Mogajane said it had agreed with Citibank to roll over some of the money due, while nine other lenders have agreed to rollover their debt.

Treasury paid R2.2bn to Standard Charter earlier this year. It got the money from government’s emergency fund, which it now want to prevent.

While some of the money raised in the R10bn bill will be used to repay lenders, Mogajane said R1.2bn of this will be required as working capital for SAA until next year March.

SAA auctioned R1bn of obsolete stock for R100m - Deputy FinMin

Deputy Finance Minister Sfiso Buthelezi said SAA has serious inventory management issues. As an example, he said the airline had to auction R1bn worth of obsolete stock for a mere R100m. “How did you get inventory that is obsolete,” he asked rhetorically.

The Finance Ministry is government’s shareholder of SAA after it was moved from Public Enterprises when it started suffering liquidity issues.

Buthelezi said the Finance Ministry has been engaging a lot more with the SAA management and board in recent times, where it has been highlighting issues as they arise.

Another issue was SAA’s countless offices around the world that don’t seem to serve a purpose. One in Miami is used as a call centre. “People are moving out of America for call centres, he said. “Why are we exporting out jobs to Miami?”

Exasperated with the embattled airline, standing committee on finance chair Yunus Carrim said SAA must return to Department of Public Enterprises. Buthelezi agreed. “They are even more of a pain to us,” he said.

A lot of the problems at SAA have been blamed on a weak board with little aviation expertise, especially chairperson Dudu Myeni, a close friend of President Jacob Zuma. Her term ended on August 31 after a year’s extension, but she has not vacated the post as the AGM has not taken place.

National Treasury hopes the airline’s annual financial statement will be finalised soon, so that the AGM can occur on November 3.

But the airlines needs help from government. SAA recorded a loss of R1.5bn in 2015/16 which spiked to R4.7bn in 2016/17. It has made a R1.3bn loss in the year-to-date ended July.

SAA requires a R13bn bailout over a three year period and Treasury is planning to provide a R10bn bailout this year, probably through the sale of government’s stake in Telkom. Details of this will be made known in the Mini Budget in October.

National Treasury director general Dondo Mogajane said R1.2bn of the R10bn will be required as working capital for SAA until next year March.

SAA has R6.785bn in government guaranteed debt, some of which has to be paid by the end of next month. This includes R1.761bn that is due to Citibank at the end of September 30.

Buthelezi said while Citibank wants its loan settled soon, the other nine lenders have agreed to rollover their debt. However, they are discussing the date of the rollover. Treasury paid R2.2bn to Standard Charter earlier this year.

SAA makes profit in July, set to cut flights by 23%

SAA made a surprise profit in July of R19m when it was budgeted to make a R207m loss.  This after it posted a R1.354bn loss in the first three months of 2017. The loss had now declined to R1.335bn.

SAA - in a presentation to be presented to the standing committee of finance on Wednesday - revealed that it will cut flights by 23% by December 2017.

By cutting five aircraft from its fleet by December, the airline hopes to save costs to turn the embattled airline around. It has already removed one aircraft from it routes.

This will see a 37% reduction in domestic flights, an 11% reduction in regional flights and a 4% reduction in international flights.

SAA also revealed that OR Tambo saw an 18% decline in traffic as more passengers flew directly to Cape Town and Durban.

Zuma did not direct Gigaba to keep Myeni on as SAA chair - Buthelezi

Deputy Finance Minister Sfiso Buthelezi said Finance Minister Malusi Gigaba did not get a directive from President Jacob Zuma to extend Dudu Myeni's tenure as SAA chairperson.

He was addressing the standing committee of finance in parliament on Wednesday.

Committee members said Myeni's extended contract was irregular because it had not been approved by Cabinet and the Companies and Intellectual Property Commission (CIPC) had not been informed of the extension as it is legally required to do.

"I have given the reasons for the extensions and I quoted the section in the law. This was the legal advice the minister got. There could be different interpretations of that section. The minister said he wanted to look at the board holistically. The minister did not get a directive to extend the chair's contract."

Parliamentary Advocate Frank Jenkins said the issue needed clarification. "The provision we are referring to (13.05 of the MOI) explains that all non-executives tenures should expire at the same time. It's about good governance. We don't want a board without non-executives. There is an issue that needs to be clarified. You can't single out the chair as one non-executive."

Jenkins will write a formal letter on parliament's position regarding Myeni's contract, which the Finance Minister will need to respond to within a few days.

Myeni was not at parliament as she had booked herself off sick.

Passengers flying past JHB and going straight to Durban and Cape Town - SAA

SAA has revealed that there has been a 18% reduction in traffic to OR Tambo as more passengers fly straight to Durban and Cape Town.

While the proceeding has been delayed due to arguments about a lack of SAA board members, Fin24 can reveal details from documents provided to the committee ahead of the session.

In its financial statement, SAA says it made a R1.4bn loss in the first three months of 2017.

It said there has been stagnant revenue growth amid an increase in finance costs. There is intensive competition in the industry with the growth of the low cost carriers, it said.

"Increased activities to secondary gateways (King Shaka and Cape Town International Airports) resulted in significant hub-pass with up to 18% traffic reduction from OR Tambo International."

SAA said it requires a longer-term extension (minimum three years) of maturing debts. It said it requires an injection of R13bn over a period of three years. None of these requests have been fully achieved, which SAA says puts its implementation plan at risk.

"Engagements with the lenders on long-term extension of the maturing debt are ongoing. One of the lenders has indicated that they would like to engage on a payment plan.

"The capital injection is the purview of the shareholder (National Treasury) and it is receiving attention.

"The last of the five excess wide-body aircraft will exit the fleet in October. One narrow-body aircraft has left the fleet, with four more expected to leave the fleet by December 2017. This would result in an overall flights reduction of 23% (domestic: -37%; regional: -11%; international: -4%)."

SAA listed the following as key risks to its implementation plan:

- Going concern and liquidity constraints
- Highly competitive operating environment
- Limited skills in aviation and airline turnarounds
- Ineffective governance practices
- High vacancies rate at leadership and critical positions
- Counter-party contracts
- Insufficient narrow-body and ageing fleet units
- Limited capacity to effect change management
- Deterioration of the macro-economic conditions in core markets
- Fragmented national aviation policy
- Labour risks
- Undue exposure to adverse movement in jet fuel, interest and currency exchange rates.

City Press reported that Dudu Myeni vowed to stay on as the chairperson of SAA’s board “until ubaba goes”. Three senior SAA executives and another source close to the board told City Press that Myeni had informed those in her close circle at the beleaguered airline that she would not step down until President Jacob Zuma, known as “ubaba”, finished his second term of office in 2019.

Dudu Myeni has not yet arrived to answer questions around issues of the embattled airline. Her term was supposed to end on August 31, but she can only be replaced at the AGM, which requires the annual financial results to be filed. These results have held up the AGM - and National Treasury hopes this will be finalised so  that the AGM can go ahead on 3 November.

National Treasury director general Dondo Mogajane: Myeni's contract was extended last year for a year and it was supposed to end on 31 August. The Minister of Finance then extended Ms Myeni’s term, until the AGM. We are hoping that the AGM should take place on 4 November. She has a letter to that effect.

An advocate in the standing committee of finance was asked whether Myeni was legally allowed to be chair. He said National Treasury - SAA's shareholder - needs to be asked whether it extended her tenure as SAA chairperson.

Parliament is debating whether SAA chairperson Dudu Myeni is legally allowed to remain in her position, after her tenure officially ended at the end of August.