Government moves forward with plan to consolidate state-owned airlines
Consolidating SAA, Mango and struggling SA Express comes as a R300m bailout is approved for the latter
The government’s proposal to consolidate the three state-owned airlines, SAA, SA Express and Mango, is currently being considered by the economic cluster of ministers, the department of public enterprises has said.
Senior department official Edwin Besa said the proposal is expected to be submitted to the full cabinet committee next week.
This comes as interim SA Express CEO Siza Mzimela told MPs on Wednesday that the National Treasury has approved a R300m bailout of the struggling, regional state-owned airline.
She said SA Express has been “advised” that the recapitalisation has been approved. The Treasury confirmed that the amount was provided to the airline through the department of public enterprises.
“These funds are provided from the contingency reserve, which was revised upwards, to respond to possible requests for funding from state-owned enterprises (SOEs) as per the announcement made during the February 2019 budget speech,” the Treasury told Business Day.
SA Express needs the R300m to keep flying as it has depleted its working capital and is unable to borrow from commercial banks without a shareholder’s guarantee.
It was reported by Business Day last month that finance minister Tito Mboweni had refused to give the carrier the guarantee, believing it should be merged with SAA and both sold.
SAA is holding out for a R3.5bn bailout from the Treasury once the Special Appropriation Bill has been processed and signed by President Cyril Ramaphosa. The bailout will be used to repay short-term bridging finance raised by the airline in January to fund operations.
The R300m recapitalisation for SA Express is in addition to the R1.2bn it received in the February budget, which was ring-fenced to settle only the government-guaranteed debt and address solvency issues. Mzimela said at a recent media briefing that R300m will be “more than sufficient to ensure SA Express operates efficiently without running into [financial] problems again”.
Financial challenges dogging SA Express saw its flights grounded for one day last month with industry sources saying this was due to the millions the airline owed the Airports Company SA (Acsa) in airport fees.
Mzimela said in a briefing to the select committee of public enterprises and communications that SA Express is solvent. Passenger volumes have shown a positive trend from January to April this year with the Mthatha route being successfully launched in December 2019 and the Cape Town base successfully relaunched in January.
She noted that the current network — both regional and domestic — is performing well above budget with losses stemming from the fixed-cost base of the airline.
Cumulative primary and secondary costs amounted to R240m as at end-May with personnel costs amounting to R77m (32%), aircraft leases R44m (19%), fuel R40m (17%), and secondary expenses R25m.
The airline’s turnaround strategy includes improving corporate governance, growing revenue and reducing costs, and improving operational efficiency.
Among the financial challenges faced by the airline, SA Express executives told MPs, are the weak balance sheet; long outstanding debts; frozen credit lines; liquidity; monthly cash burn; and high cost structure. Corporate challenges include low staff morale; high staff turnover; high rate of management vacancies; onerous agreements and contracts; zero accountability; and a shortage of skills.
They said revenue shows an upward trend despite the many challenges — unfavourable contracts being canceled or renegotiated; aircraft lease costs being reduced; all charters being canceled; and employee costs reduced.
SA Express, which has a fleet of 22 aircraft, serves secondary routes in SA and regional routes to Botswana, Namibia and the Democratic Republic of Congo. It also provides feeder air services that connect with the SAA network. However, only 11 aircraft are registered on the air operator’s certificate compared to the 15 initially planned, due to liquidity challenges.
Average daily fleet utilisation is nine hours and 21 minutes. SA Express has been was unable to implement a number of new routes due to the unavailability of aircraft.
Management is finalising the process of right-sizing the organisation to ensure efficiency and will no longer service their routes flying out of Johannesburg to Richards Bay, Durban and George as they “do not make business sense”.