Picture: THE TIMES
Picture: THE TIMES

SAA would also not be able to withstand a strike, which would cost in region of R50m a day, nonexecutive director Martin Kingston said on Wednesday.

Kingston also said that despite having received substantial support from the government in 2019, SAA requires more funding to continue operations.

SAA was appearing before parliament’s standing committee on public accounts to explain why it has failed to submit its annual financial statement to parliament for the past two years, in accordance with the Public Finance Management Act.

“The consequence of our current financial circumstances and the threat of an impending strike would fundamentally undermine any hope of a turnaround taking place,” said Kingston.

The airline has received R5.5bn from the Treasury in 2019. It has also been given an undertaking that the Treasury will repay its R9.2bn debt over the next three years. But, to continue operations it still requires working capital which Kingston said it has been unable to raise from commercial banks without a full government guarantee. While this amount had previously been estimated at R2bn it would now be higher as trading conditions were worse than expected.

Kingston told the committee that the company was unable to table its financial statements as it was not a going concern and would receive either a disclaimer or a qualified audit.

Furthermore, without the government guarantee for working capital it was unable to say when it would be able to table accounts.

A disclaimer on the accounts would mean that SAA’s credit would dry up overnight and would be unable to fly, said CFO Deon Fredericks. The board was not prepared to take that risk.

Kingston said the only remaining option was for SAA to table accounts on a liquidation basis.

“This would have a catastrophic effect. All our loans and the leases on our planes would be accelerated. There are R40bn of obligations that would have to be settled immediately,” said Kingston.

The board could not do that without the consent of its shareholder, which is the government. It would also mean that government would lose control over SAA which would be in the hands of the liquidators, he said.

Kingston said that the board has also looked into the viability of business rescue for SAA and been informed by senior council that the airline was not a candidate for it because of the uncertainty that hung over its ability to raise funding to save the business. 

Members of the committee were dissatisfied with the airline’s failure to table the financial statements and insisted that it comply with the law.

In a statement after the meeting, chair of the committee Mkhuleko Hlengwa said that the committee did not accept the assertion that the board was not prepared to shoulder the risks associated with a disclaimed audit opinion.

"SAA does not have the pleasure of choosing whether to follow the law or not. A state-owned entity has an obligation to submit annual financial statements on time, despite the consequences to enable parliament to conduct oversight," he said.

The committee has insisted that SAA provide it with a road map of when it intends to submit its financial statements as well as the legal opinion it obtained that states that business rescue is not an option for SAA.

Kingston said that liquidation would put 10,000 jobs at SAA and its subsidiaries at risk, and 40,000-50,000 indirect jobs.

patonc@businesslive.co.za