National treasury has agreed to a R5-billion guarantee for South African Airways for two years, following a dramatic walk-out by the board, it was announced on Tuesday afternoon.
"The South African government has granted South African Airways a R5-billion guarantee for a period of two years starting from September 1 2012. The guarantee will enable SAA to borrow from the financial markets, thus ensuring that the airline continues to operate as a going concern."
"The minister of finance and I will announce [on Tuesday] a R5-billion guarantee," Minister of Public Enterprises Malusi Gigaba told the Mail & Guardian, while on a trade trip to Ghana.
The announcement comes on the back of major drama at the airline when eight of the 11-member board resigned, including chairperson Cheryl Carolus after Gigaba postponed their annual general meeting.
She cited a lack of support from the department, which Gigaba's officials contested. "On Tuesday I had dinner with Cheryl," Gigaba said. "We have been in constant contact. She didn't tell me she was going to resign on Thursday."
Former board member David Lewis told Business Day his decision was based on lack of support of late, of the turnaround strategy, the financial report and budget and Gigaba's silence in the face of public criticism of the board.
The airline, like all state-owned entities, was meant to table their annual results within six months after year-end, in this case by September 30, Fin24 reported. Gigaba wrote a letter to Max Sisulu, the speaker of the national assembly, explaining the delay in the submissions.
Gigaba said at the time SAA has not been able to finalise its annual report "due to the need to address the immediate financial position of the airline before the auditors can finalise the annual financial statements".
But Gigaba told the M&G while the board members seemed to resent the letter, he had to write it as they had a deadline to meet and were in danger of contravening the Public Finance Management Act.
"The board was being extremely melodramatic, to be honest with you. They acted in absolute disregard for the airline and in bad faith. There was absolutely nothing malicious in the decision to postpone the AGM."
The minister postponed SAA's annual general meeting to October 15 in what he said was a bid to secure the guarantee in time for the meeting. But the board criticised the postponement, concerned that it made them look bad.
"We agreed to postpone with them. SAA has submitted an application for recapitalisation, and the auditors said if they didn't get the guarantee, the audit would be qualified. But they were sitting on my case, putting pressure on me while treasury was considering their request," Gigaba explained.
"I said, let's postpone the AGM until the government certification committee meet and finalises the guaranteed. It met on Thursday last week. We didn't know what conditions they would come up with. We may need to engage about it ahead of the AGM. I said let's postpone the AGM till October 15 so we could study it. The company had run out of money completely."
But according to Business Report, the delay put SAA's directors in an extremely vulnerable situation as they are deemed to be responsible for the statements.
Carolus told journalists: "I have a stamped receipt from the department of public enterprises showing that the statements were received by them on August 31. All that was outstanding was a letter from treasury indicating that it would support SAA if the oil price continued along its forecasted path."
But Gigaba has put the incident behind him and had appointed Vuyisile Kona as the new board chairperson. Though a controversial choice, he brings experience to the role.
"I am satisfied with the deal," said Gigaba. "I think it brings us closer to the AGM and proceeding to beginning to setting the airline on track."
The airline was angling for a guarantee of between R4-billion and R6-billion over five years for operational costs, growth strategy and new fleet. While SAA posted a R782-million profit at the end of the 2010/11 financial year and R442-million profit during the 2009/10 period, its operating margin fell to 4.24% in 2011. The airline wants to buy 20 new Airbus between this year and 2017 and is looking to expand across the African continent in order to boost its flailing profits. But critics say the airline is designed to fail as a business, in a harsh operating environment.
According to the department, "the guarantee requires that the SAA board develop a turnaround strategy to be approved by the minister of public enterprises in concurrence with the minister of finance.
"This will include SAA providing the department of public enterprises and minister of finance with the financing strategy for its planned purchase of short and long haul fleet. Furthermore, a technical committee comprising representatives from the national treasury and the department of public enterprises will monitor SAA's financial position, and progress with developing and implementing the turn-around strategy."
The Mail & Guardian's trip to Ghana was paid for by the department of public enterprises.