Since 1999, the SAA has received over R13 billion from government.
eNCA reports that ratings agency, Fitch has issued a stern warning, saying the country needs to better manage its state-owned entities. This after the latest South African Airways bailout – a R2.3 billion cash injection with no stringent conditions attached.
“The risk of the SOE’s to the sovereign are not just theoretical,” Jan Friedrich from Fitch Ratings said. “Eskom needed a cash injection in 2015. And SAA now needs government support. The fiscal risks are heightened by expected weakening of SOE governance. Existing SOE liabilities are more likely to land on the government’s balance sheet. And the stock of liabilities will rise faster than expected.”
SAA is reportedly bleeding nearly R370 million a month, while relying on government guarantees of about R20 billion to stay afloat.
The airline posted a net loss of R1.9-billion rand in March this year.
Statement from National Treasury on 1 July 2017
Government has decided to transfer funds from the National Revenue Fund to South African Airways to allow the airline to pay back its debt to Standard Chartered Bank thereby avoiding a default. This payment was done in terms of section 16 of the Public Finance Management Act. This section of legislation states that the Minister can authorise the use of funds to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future Parliamentary appropriation of funds. The due process laid out in the legislation will be followed.
A default by the airline would have triggered a call on the guarantee, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.
Improving the financial positions of the airline through recapitalisation has been on government’s agenda for a while as outlined in the February 2017 Budget. Several options are being explored and an update will be provided during the Medium Term Budget Policy Statement in October 2017. Given the nature of the problems at SAA, section 16 of the PFMA had to be used as the last resort.
Government will do everything in its power to ensure that the airline’s turnaround strategy is implemented. The airline remains a strategic asset and in its role as the flag carrier, it serves as an economic enabler with direct and indirect benefits across a wide range of economic activity.
Alf Lees, DA Shadow Deputy Minister of Finance
When SAA appears in Parliament on Thursday, 3 August, the DA will interrogate it on the awarding of an apparent fraudulent R1 billion contract to SAA subsidiary, SA Airways Technical (SAAT).
We will also submit a written question to the Minister of Finance, Malusi Gigaba, to obtain the full details of this deal as well as what action is being taken to prosecute those who benefitted unduly.
The revelation of this contract follows hot on the heels of the SAA taxpayer bailout of R2.3 billion.
It seems that the awarding of this contract was aided and abetted by senior SAAT managers and illustrates the depth of mismanagement of SAA and its subsidiaries, starting from the top with Board Chair, Dudu Myeni.
SAAT has contributed to the overall SAA losses and posted losses of around R122 million in 2014 and R260 million in 2015. These losses, given the revelation of the R 1 billion deal, may well have been the result of corruption and not only mismanagement.
Even Mango, the low-cost subsidiary of SAA, posted a loss of R 40.5 million in 2016, despite having the benefit of leasing aircraft from SAA, its mother company, at rates that were apparently way below the actual costs incurred by SAA.
The national carrier is losing R370 million monthly. That is over R12 million per day. The mismanagement crisis at SAA is getting out of hand.
It is now clear that the rot has permeated throughout the SAA group of companies. The mess that is SAA must be cleaned up immediately.