Broke SAA could not pay its bills in July, airline tells MPs
SAA was unable to pay all its suppliers at the end of July and had to make arrangements with some of them to pay later, the airline’s chief financial officer Phumeza Nhantsi told MPs on Friday.
Arrangements had to be made with 20 suppliers.
SAA is facing a liquidity crisis and is not generating sufficient cash to cover its costs. It has told the Treasury that it needs state support of R13bn over the next three years, in addition to the R2.2bn granted recently.
Nhantsi said the airline was unable to pay all amounts owing at the end of July and instead of paying the lump sums due, the airline was paying the amounts on a weekly basis as it generated revenue.
However, SAA was covering salaries.
Nhantsi also told members of Parliament’s finance committee during a briefing by Finance Minister Malusi Gigaba and the SAA team that the airline was also negotiating with lenders to extend the R6.8bn in loans that mature at end-September. These loans had already been extended after negotiation from end-July.
Gigaba said it was an indictment against SAA that many of the “self-evident” measures needed to stabilise the airline had not been implemented much earlier.
There were quick wins that could be gained on the liquidity front that the board could have taken, the minister said.
He conceded that the airline faced critical financial challenges in the short to medium term, but was confident that these could be dealt with.
The airline has also been instructed to implement its long-term turnaround strategy “aggressively”.
Gigaba stressed that it could not be business as usual at SAA and that belt-tightening was needed to stabilise it. Delays in cutting costs meant that millions of rand were being lost every month.
The SAA board was being reviewed and aviation experts would be brought in at both board and executive management level.
Gigaba said strict conditions would be attached to the recapitalisation of the airline, which would be announced in the medium term budget policy statement in October. “There is no way we are going to give SAA money for free,” he said, adding this would be throwing money into a bottomless pit.
The minister also said the SAA board had to demonstrate to the public that the airline was worthy of state support.
The SAA corporate plan tabled in Parliament on Friday showed that R6bn would be derived from external funds in the 2017-18 financial year. Gigaba said this could possibly come from the Public Investment Corporation (PIC) but all options were under consideration.
Gigaba said the appointment of a new CEO — Vodacom executive Vuyani Jarana — was an important step to stabilise the leadership of SAA, but by itself this was not sufficient. Many other steps were needed to turn around the airline, most important of which was to tighten up internal controls. If these were not dealt with, SAA would fall into the same trap of a few years ago.
The governing structure and processes needed to be stabilised, critical posts such as a chief commercial officer needed to be filled and the structure of executive management had to be flattened to facilitate the speedy implementation of decisions, in a highly competitive market.
Revenue management was also key, Gigaba stressed. IT systems needed to worked on, route networks needed to be rationalised, aircraft needed to be used strategically and the very costly incentive scheme for SAA pilots had to be dealt with. Repayment of SAA funds of $60m from Angola would assist with cash flow.
Acting SAA CEO Musa Zwane told MPs on Friday that the airline’s executive management had decided to take a 5% salary cut from September as part of a plan to reduce costs.
Route rationalisation would save R900m while fuel management would save R520m by the end of the current financial year.