Floundering SAA needs cash injection to avoid liquidation

While the potential size of the bailout is unknown, a cash injection to SAA is inevitable.

While the potential size of the bailout is unknown, a cash injection to SAA is inevitable.

Ailing national carrier South African Airways (SAA) is not financially viable and needs yet another cash injection or it will face liquidation.

This is according to the portfolio committee on public enterprises, which, during an oversight visit at SAA last week, was informed that the company needed a capital injection for it to be able to operate to its capacity. “Without [a] capital injection or a government guarantee, the auditors will not sign the financial statements and this will lead to the company being liquidated,” the committee chairperson, Dipuo Letsatsi-Duba said in a statement issued on her behalf, following the visit.

The carrier as yet has not submitted its annual financial statements to public enterprises, and had recently been granted a five month extension by the minister, Lynne Brown, in order to do so.

Asked about the committee statement, SAA spokesperson, Tlali Tlali referred the Mail & Guardian to the shareholder, public enterprises, for further comment. Public enterprises spokesperson Colin Cruywagen was however unable to comment “while a number of processes are underway with regard to the turnaround of SAA”.

This is not the first time SAA has had auditors refusing to sign off on financial statements without intervention from the state. In 2012, just before the airline was granted a R5-billion loan guarantee (and R550-million to cover operating expenses during the festive season), Business Report reported how, without a government guarantee, “[PricewaterhouseCoopers] and Nkonki, SAA’s joint auditors, were unable to finalise the accounts without qualifying them, which meant that SAA’s financial statements could not be tabled in Parliament”.

The airline has also previously received a R1.3-billion subordinated government loan.

The visit was intended for members of the committee to understand the challenges that SAA is facing, “in particular, relating to governance instability, the resignation of board members and suspension of the chief executive officer and financial difficulties that the company is experiencing,” the statement said.

A cash injection is inevitable
Chairperson of the SAA board, Dudu Myeni, suspended the chief executive, Mnwabisi Kalawe, and would not reinstate him even after a request from Brown to do so. The M&G last week reported on the close relationship between Myeni and President Jacob Zuma, who are rumoured to be having a romantic relationship.

The minister met with the board on Monday but, according to a Business Day report, would not provide details of what was discussed and would instead release a statement on the matter later in the week.

In its statement, the committee said it had received a briefing from the interim board and senior management, and now had a better understanding of the challenges that the airline is experiencing. “The committee pledged its support to the interim board and acting CEO to stabilise the company. The committee also supports the implementation of the long-term turnaround strategy. Members of the committee emphasised the need that board members must provide leadership and not leave things to happen without their supervision,” the statement said.

While the potential size of the bailout is unknown, Linden Birns, managing director of Plane Talking, said a cash injection is inevitable.

“There are some markets that are just not served by anybody else. Routes like Brazil and India for example are recognised as being important markets … Undoubtedly, there is an economic benefit, if we don’t offer connectivity to those markets then those will wither and it will be difficult to resurrect them,” he said.

Cutting routes is not the solution Birns said. State-owned enterprise, Turkish Airlines, he said, had seen an 87% profit rise in the first nine months of this year through adding new planes and routes, which illustrates the need for investment.

“One of the biggest issues that has to be dealt with, and SAA can’t just ignore it, is the issue of productivity … The headcount has gone up while the size of the business has gone down … If they are not going to shed jobs they need to increase routes,” said Birns.

Lisa Steyn

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen. Read more from Lisa Steyn


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