SAA seeks extra R5bn bail-out from state
The hoped-for bail-out for the state-owned airline is in addition to the R10bn from the government in 2017
South African Airways (SAA) is in discussions with the Treasury on a cash injection of about R5bn, which the company needs to cover historic debt and its working-capital requirements until September.
This emerged from submissions by SAA CEO Vuyani Jarana at a meeting of Parliament’s standing committee on public accounts on Tuesday.
The hoped-for bail-out would be in addition to the R10bn injected into SAA by the government in 2017.
Jarana said part of the R5bn was needed now as SAA did not have a credit line and was short of revenue to cover expenses.
"We do need access to capital to sustain the operations. We have been having discussions with Treasury as well as the banks around how we can have an open credit line while we are working with the joint oversight committee [comprising government and SAA board members] on a fully fledged capital structure for SAA." In a presentation to be made on Wednesday to the standing committee on appropriations, SAA says its current cash-flow position is "unsustainable" and will become significantly worse without immediate intervention.
However, Jarana insisted in an interview after the meeting that SAA had available instruments to meet its continuing working-capital requirements, such as the obligation to pay salaries and suppliers.
SAA is working on a long-term turnaround strategy that will take about three years to bear fruit and Jarana stressed there would be no quick fixes. In terms of SAA’s long-term plan, it will break even in 2021.
Jarana said SAA’s balance sheet had to be restructured, revenue performance had to be accelerated and the fleet had to be refreshed in order to return to profitability. This required a long-term funding plan that would not be covered by the envisaged R5bn.
Members of the committee raised concern about the going-concern status of the airline. This was an issue raised by the auditor-general in the 2016-2017 financial statements and was only settled after the state made a cash injection of R10bn into SAA in about October 2017.
ANC MP Mnyamezeli Booi said it appeared the airline had no capital to run itself.
Janara said in reply that the airline’s balance sheet was very weak, with a negative equity currently of R9.2bn. This debt would mature in March 2019, presenting a real challenge.
"That is not the position any business can run with, where it has negative equity as we have today," Jarana told the MPs. "Any business has a maximum debt carrying capacity. The moment you overburden a business with debt you get to a point where it is unable to carry its repayments, whether it is interest or the principal amount.
"As things stand today, SAA is not able to pay the principal amounts. We are bearing interest, which already indicates the debt is burdensome."
To resolve the going-concern status, it was critical to tackle the funding of the R9.2bn, along with the financing of the implementation of the turnaround strategy. Janara said the balance sheet could not support the acquisition of assets.
DA MP and shadow deputy minister of finance Alf Lees said it appeared that SAA was facing a cash crisis.
Janara said the government had indicated that SAA needed a strategic equity partner, adding that discussions about this were taking place in the joint oversight forum, which is looking at the portfolio of funding instruments for the airline.