SAA subsidiaries still struggling despite government funding

As domestic carrier SAA prepares to resume operations in September, its troubled subsidiaries remain in financial difficulty despite receiving a combined cash injection of R991m from the government.

Low-cost airline Mango has received R100m to go towards its business rescue, while SAA Technical (SAAT) and Air Chefs  have received R784m and R107m respectively. SAAT and Air Chefs are retrenching staff in a process that will see numbers reduced by more than 60%. 

The funds to the subsidiaries are part of the R2.7bn allocated to the companies as part of SAA’s business rescue plan. The subsidiaries were due to receive the funds earlier in 2021 but disbursement was delayed, resulting in the companies being unable to cover operational costs including the payment of salaries and creditors. 

Before the pandemic SAAT got 80% of its revenue from SAA. The repair and maintenance unit of the grounded national carrier has operated at a reduced level since 2020, which slashed its revenue drastically, according to SAA interim CEO Thomas Kgokolo.

SAAT and Air Chefs will continue to provide services to SAA once it takes to the skies later this month but at a diminished scale because SAA will operate fewer routes and have fewer passengers.

“The employee-related costs were too big and could not match the revenue we are able to extract from the market at this stage ... we hope that within the next month or two the section 189 retrenchment processes will be finalised,” Kgokolo said.

SAA and the Takatso consortium, which is due to own a majority stake in SAA, have concluded a due diligence process, paving the way for the sale and purchase agreement for the airline to go ahead. However, it remains unclear whether SAA’s subsidiaries will form part of the new SAA as the due diligence process did not identify any material issues, Kgokolo told parliament’s portfolio committee on public enterprises on Wednesday.  

The Takatso consortium comprises Global Aviation and Harith General Partners. Harith co-founder and Takatso chair Tshepo Mahloele is chair and founder of Lebashe, which owns Business Day and other titles.

“The big outcome of the business rescue was that government wanted to ensure that we have a viable and sustainable national carrier and that is why we have decided to restart the airline on September 23,” Kgokolo said.

He said SAA has enough cash on hand to resume operations until the airline’s equity partner, the Takatso consortium, comes on board when the planned purchase of a majority stake is concluded.

Takatso will pump more than R3bn into the troubled airline over the next three years. Until the sale agreement between the government and the equity partner is concluded, SAA will use the funds left over from its R10.5bn government bailout to resume operations. The consortium will not be involved in any of the start-up costs of the airline.

Public enterprises deputy minister Phumulo Masualle said the airline will not receive any more government guarantees beyond using the guarantees already given. This includes the R502m issued to SAA by the government to be in place to enable the airline to borrow from capital markets.

“The implication therefore is that SAA has to raise its own guarantees, like any other business, and as we are able to restart we are putting in place guarantees of about R700m,” said SAA interim CFO Fikile Mhlontlo. 

maekot@businesslive.co.za