SAA is debt-free

South African Airways (SAA) is currently debt-free and is not looking for additional funding from National Treasury.

However, Parliament’s Standing Committee on Public Accounts (Scopa) heard on Tuesday the national carrier requires a capital injection to get back to its “former glory”.

The capital is also needed to bring forward some of the plans it has pushed back because of the non-availability of the R3 billion it would have received from the proposed controversial acquisition of a 51% share in SAA by the Takatso Consortium.

As minister of public enterprises, the late Pravin Gordhan pulled the plug in March on negotiations to sell the stake to Takatso for R51 on condition that it would inject R3 billion of capital into SAA in the form of a shareholder loan over a period of time.

Scopa also heard that SAA is in discussions with financial institutions regarding a loan facility.

This would be to provide it with a buffer against any shocks or Black Swan events, such as “a bird strike” or the country being forced into another shutdown because of a pandemic.

Open to equity partner

Minister of Transport Barbara Creecy said government remains open to securing an equity partner for SAA, stressing the airline will lose market share without one.

She said a capital injection would assist in ensuring the ability of SAA to continue as a going concern and help facilitate the expansion of regional and international routes.

She said the equity partner could be a development finance institution or another airline if there was interest and appetite.

Creecy added that it would be “a good solution” if a development finance institution wanted to take equity in SAA, adding they already had that solution in the Airport Company of South Africa (Acsa) where the Public Investment Corporation (PIC) owns equity.

“We don’t have any interests on the table at the moment that we are negotiating but we are open to the equity partner,” she said.

‘No interest’ in privatising

SAA chair Derek Hanekom agrees that the airline needs a capital injection but stressed that the SAA board doesn’t “have any interest, desire or appetite for privatising this airline because we think this airline can be made into a very valuable asset to the South African economy”.

Hanekom added in response to a question about why they did not just privatise SAA that “there is real potential value in having a national carrier”.

He said the issue of bringing in an equity partner is the prerogative of the shareholder, which is the government, and the question is where does the cash injection come from?

“As I understand, there is no question of privatising. We are not in the situation we [SAA] found ourselves in when we were under business rescue or when we just came out of business rescue.

“There is a clear distinction between privatising and getting investment. Qatar has just invested in one of our domestic airlines,” said Hanekom.

“They have just a 25% share and it was to the benefit of that airline.”

He said the SAA board’s responsibility is to do what is best for the country, the economy and the airline.

He added that SAA is also not depending on a capital injection next year and this has not been budgeted for next year.

“It’s for the later years. If something transpires, that will obviously be welcomed and it would be useful because it would mean that we would be able to bring forward some of the plans that have been pushed back because of the non-availability of the R3 billion [from Takatso],” he said.

Growth and expansion

Hanekom said when SAA came out of business rescue in September 2021, it was a seriously weakened airline but has subsequently achieved steady growth and is on an expansion path.

He said SAA introduced a São Paulo flight to both Johannesburg and Cape Town last October and a direct flight to Perth in April.

Read: SAA ups flights to Mauritius, Perth and Africa

“We believe in the potential of the airline passionately. There is no doubt we are on a growth path,” he said.

Hanekom said SAA is currently flying about 16 aircraft but by next year will add new routes and will need additional aircraft.

He said SAA is in the process of increasing its aircraft fleet to 21.

Responding to a question about returning SAA to its former glory, Hanekom said this statement is misleading because although SAA was a big airline, it was showing a loss year after year and the taxpayer had to take the burden of that accumulated loss.

“There would be a serious and legitimate question about whether taxpayers would like to continue financing an airline. It’s a valid question,” he said.

What about Mango?

A question was also asked about affordable flights and Mango Airlines, which is in business rescue.

Hanekom said Mango did not just go into business rescue for the sake of it but it “crumbled”. He said Mango may have been providing affordable flights for a period, but this was unsustainable, and it was running at a serious loss.

He added that the issue is do you simply provide affordable flights irrespective of whether it is sustainable and covering its own expenses, in which case there is only one source for those funds – National Treasury, using taxpayer money.

Hanekom said it is not for the SAA board to say if Mango will come back into the market because it is in the hands of the business rescue practitioners, who seem to be confident there is a potential buyer for Mango.

But he noted that the domestic airline market has become highly competitive, which is good for ticket pricing.

He said SAA could over a period provide more domestic flights but has a serious advantage through the kind of aircraft, expertise and branding it has on regional and intercontinental flights. – moneyweb.co.za