SAA will have a strategic equity partner by August, says public enterprises department

 The department of public enterprises will ink an agreement with a strategic equity partner for SAA within the next eight weeks, Deputy Minister Phumulo Massuale told parliament’s select committee on appropriations on Wednesday.

“That process is near the end right now … due diligence has led us to the point where we can say in the next six to eight weeks that process will be concluded,” he said.

Acting director general Melanchton Makobe added: “Once the process is finalised and the preferred strategic equity partner is identified an announcement will be made, and once that process will conclude we will indeed see a born-again SAA.

Identifying an equity partner was a key element of the often fractious business rescue of SAA that formally concluded at the end of April. 

But the briefing flagged a raft of problems now confronting the carrier, as well as conditions set by the treasury to contain the inherent risks to the fiscus.

Makobe noted that the weakness of subsidiaries South African Airways Technical (SAAT) and Mango were in part the result of SAA being at a standstill but were now reversely threatening the viability of the turnaround plans for the carrier.

Hence, R2.7-billion of R10.5-billion approved by the treasury for the restructuring of the airline was being spent on returning the subsidiaries to viability. 

The SAAT is struggling to perform maintenance and doesn’t have the funding to cover fixed monthly costs, including paying staff members their full salaries. It has been allocated R1.6-billion for restructuring and right-sizing its operations, Makobe said, but some of the money will also be used as working capital.

In the case of Mango, he said that operational problems were mainly because of “having aircraft on the ground as opposed to having it in the air” and confirmed that R819-million has been allocated to the low-cost airline.

“The financial issues of Mango is it is unable to meet critical payments, so most of the funding really that is required in Mango is to pay for their accumulated debt,” he said, adding that here again some of the spend will be used as working capital.

“The board is doing some work on the future sustainability of Mango to make sure that going forward it is a viable business,” Makobe said.

A total of R218-million will go to Airchefs, which too is unable to cover costs and is in need of restructuring.

Of the R7.8-billion that has been transferred to SAA, R2-billion was used to pay the voluntary service packages of employees and cover three months of the outstanding salaries. A total of R632-million was paid to post-commitment creditors and R800-million was spent on paying a portion of the airline’s unflown ticket liabilities.

There is now a balance of R4.4-billion in SAA’s account, of which R2-billion will be used for working capital once the airline resumes operations. An amount of R800-million has been set aside for paying pilots’ salaries and severance packages pending the outcome of their labour dispute with the company.

He stressed that one of the conditions for the allocation from the treasury to SAA was that its unused government debt guarantees should be reduced by the sum of the recapitalisation and no new guarantees would be issued.

Phatu Rasivhetshele, the director for transport and aviation at the treasury’s asset and liability management division, confirmed that the government’s remaining exposure to SAA debt now stood at R6.4-billion, which has been provided for in the medium-term budget policy framework. 

“R10.3-billion was paid last year. There is R4.3-billion that will be paid in this financial year and R1.8-billion that will then be paid in 2022-23. The ultimate goal would be for the airline to raise funding on the strength of its own balance sheet and to pay any debts and operational obligations that it has from the cash generated.”

The government’s guaranteed exposure to unflown ticket liabilities stands at R768-million and to letters of credit and financial guarantees at about R255-million. This made for a combined contingent liability of just over R1-billion, but the rescue plan provides for its settlement.

“How we have mitigated against these risks is we have set the condition that any unutilised government guarantees will be reduced and no additional funding will be raised utilising government guarantees,” Rasivhetshele said.

“So what we are going to continue to do together with the DPE [department of public enterprises] and SAA is monitor and get them to quantify what their exposure is and as that exposure is reduced, we are going to reduce the guarantees that are available. Although these remain the contingent liability of the state we do not expect that any fiscal funding will go in the settlement of these.”

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