Urgent measures to stem SAA collapse

The Treasury plans to bring a special appropriation bill for R10-billion to parliament before the end of the month to provide South African Airways with the necessary capital to continue operating, and to provide for the repayment of loans to lenders, Treasury directorgeneral Dondo Mogajane said yesterday.

Parliament will be in recess from Monday for two weeks so the urgent need for funds will require that a special sitting be held. During a meeting of parliament’s standing committee on finance yesterday it emerged that SAA will need R2.4-billion in working capital until the end of March.

The Treasury also needs to regularise the payment of R2.2-billion that it made to pay out Standard Chartered Bank, when the bank refused to roll over its loan to SAA in June. An additional amount might be required before the end of the month to repay part of the R6.8-billion in loans which mature then.

Citibank has indicated previously that it does not want to roll over its R1.8-billion loan, but Mogajane told MPs that negotiations with the bank and other lenders were continuing to get the loans extended. He said some lenders were willing to roll over their loans, but others wanted to be paid. Mogajane warned of the danger of SAA defaulting on any of its loans, as this would trigger cross defaults for the loans to other state-owned enterprises which would also have to be paid.

An urgent special appropriations bill will be required as a short-term measure ahead of the additional appropriations made in the medium-term budget policy statement, which will be tabled by Finance Minister Malusi Gigaba on October 25.

After that, the appropriations bill will have to be adopted by parliament. DA Shadow deputy finance minister Alf Lees said the situation was a crisis. It was shocking that the Treasury was still in negotiations with lenders two weeks before the deadline, with no clarity on the way forward, and was planning to push through a special appropriations bill at very short notice, Lees said in an interview.

SAA chief financial officer Phumeza Nhantsi said the airline was trying to negotiate an extension of the R6.8-billion loans due by the end of the month for a further 18 months. This was necessary for SAA to pass the going-concern test, a condition for the auditor- general approving its financial statements. SA Express had failed this test, Public Enterprises Minister Lynne Brown told the committee yesterday morning . The Treasury was also considering a request by the SABC for a guarantee of R3-billion, the committee heard.

Granting the guarantee would raise total state guarantees, which stand at R474-billion, up from last year’s R470-billion. The government’s contingent liabilities in the form of guarantees are of concern to credit ratings agencies. Meanwhile, SAA executives revealed in a presentation to the committee yesterday that the airline plans to significantly reduce its flights by 23% from the end of the year‚ mainly on domestic routes. The initiative is part of a programme to remove loss-making routes and rationalise the airline’s network.

The flight reduction will be the outcome of the exiting of narrow-body aircraft from the airline’s fleet‚ with one having already left and four more expected to leave by December. The last of the five excess wide-body aircraft will exit the fleet in October next year. According to the presentation‚ SAA made a loss of R1.4-billion in the first quarter of the current financial year. But it made a profit for the first time in a long time of R19-million in July, compared with the budgeted loss of R207-million. Income for the month was almost in line with budget.

SAA said progress was being made in cutting costs, but finance costs were high‚ amounting to R468-million in the four months to end-July compared with the R363-million in the same period last year. And the committee heard from Treasury officials that the extension of SAA chairwoman Dudu Myeni’s contract until the airline’s AGM – probably in early November – was legally sound. However‚ committee members and parliament’s legal adviser questioned the legal basis for the extension. Legal questions were raised after it emerged that the Companies and Intellectual Property Commission (CIPC) had not been informed within the required 10 days that Myeni would remain in her position.

Myeni‚ who has been at the helm of SAA for about eight years‚ was ill-disposed and could not attend the meeting. During her term, the airline has plunged deeper into financial collapse. Her contract was renewed last year for a further 12 months‚ which ended on August 31.

It was then extended until the AGM. Deputy Finance Minister Sfiso Buthelezi said the extension by Gigaba without the approval of the cabinet was allowed in terms of SAA’s memorandum of incorporation.

He was not sure whether the CIPC had been informed. Buthelezi said the minister thought it prudent to extend the contract as the Treasury was undertaking a holistic evaluation of the board and was looking at the airline’s financials, performance and skills matrix.

He categorically denied President Jacob Zuma had given an instruction to Gigaba to extend the contract, as DA MPs suggested.

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