SA Express plunges into the red, liquidity and solvency at risk
Cash-strapped regional airline South African Express, which has debt-to-equity ratio of about 600%, is preparing an application to submit to the Department of Public Enterprises for a recapitalisation, chief financial officer Mark Shelley said in Parliament on Wednesday.
The airline is already reliant on a government guarantee of R1.1bn to keep it going.
Parliament’s public enterprises committee learned in a briefing by SA Express executives that the company had an unaudited R234m loss in the 2016-17 financial year after a R16.9m profit the previous year.
Revenue of R2.4bn was posted compared with the previous R2.5bn, which translated into a net operating loss of R104.7m compared with the previous profit of R27m. The results are provisional and will only be finalised at the end of July.
Passenger numbers fell from 1.3-million to 1.23-million in the 2016-17 year, while flights operated declined from 33,234 in 2015-16 to 31,206 in 2016-17.
Acting CEO Victor Xaba told parliamentarians that the airline needed a recapitalisation or cash injection to deal with legacy issues, while Shelley noted that high debt-service costs had eroded profits.
Xaba, who was seconded to the company by Public Enterprises Minister Lynne Brown from his position as deputy CEO of Denel Aerostructures in April, said the company’s commercial viability and long-term financial sustainability had been undermined by its diminished competitive edge relative to other privately owned airlines.
He also identified the poor balance sheet as a problem that was linked to long-term aircraft leases and added to the high fixed-cost base.
Liquidity and solvency were threatened, driven largely by poor working capital management, legacy creditors, high spares costs and high debt.
Xaba noted there was a very low morale in the organisation, which tended to focus on short-term survival issues and lacked a long-term vision.
As soon as he arrived at the company, he picked up the lack of internal controls, which he had attempted to rectify, and he is also trying to change the culture of the company.
Xaba said he had developed a short-term recovery plan that was focused on a "self-correct" approach rather than immediately seeking assistance from outside and was trying to change the narrative around the airline into a more positive one.
A number of technically skilled people had left SA Express for other airlines.
SA Express chairman George Mothema said the board decided that a new CEO was needed to replace former CEO Inati Ntshanga to take the company forward and to change the culture of the organisation.
The suspension of the airline’s air operating licence and the grounding of all its aircraft last year was of great concern.