SAA asks state for a capital boost

2014-02-19 15:59

SA Airways remains constrained by a weak balance sheet and needs a capital injection from government to thrive, airline executives have told MPs.

Briefing Parliament’s select committee on labour and public enterprises today, SAA CEO Monwabisi Kalawe said he remained confident that the airline’s long-term turnaround strategy would yield results by 2018.

“Somewhere between year four and year five, the business should break even or show a small profit,” Kalawe said.

MPs grilled him on the continuing bailouts by government that have attracted widespread criticism. Kalawe said the bailouts were in the form of government guarantees which allowed the state carrier to borrow from banks.

“Against those loans, we pay heavy interest,” he said.

This was setting the airline back even more.

“When SAA was taken out of Transnet, it is our view ... that the balance sheet was undercapitalised,” he told MPs.

He insisted that the call for a capital injection was not as a result of poor management by the current board and executive management.

“We inherited a business with a balance sheet that was not properly capitalised. All we are asking for is to give us a fair start, shareholders,” Kalawe said.

He could not publicly say how much they were asking for.

“I’m not able to give you ratios or numbers because if I do that, I will compromise the confidential conversations that are taking place between DPE [department of public enterprises], our shareholder and National Treasury,” he said.

DPE deputy director-general Kgomotso Modise confirmed that her department was in talks with Treasury to ask for the capital boost and said the numbers were being “worked out”.

SAA chairperson Dudu Myeni threw her weight behind the airline’s request for a capital boost.

“The issue of being bailed out all the time, every year, is not something that augurs well for the board ... There must be an end to when we go to government with a hat,” Myeni said.

The lack of a capital injection meant the airline would continue to make losses on specifically international routes, where older “gas-guzzling” aircraft were still being used. As a result of the weak balance sheet, new wide-bodied planes could only be delivered by 2018.

The fuel price, a volatile exchange rate and loss-making routes were some of the issues blamed for the more than R900 million loss the airline made last year.

The long-term turnaround strategy would include “aggressively” negotiating fuel costs, closing loss-making routes or reviewing them and improving sustainability.

The South Africa to Kigali route had already been closed and flights to Buenos Aires will be withdrawn.

The loss-making Johannesburg to Beijing route will remain open as government saw it as a key route for maintaining relations with China.

Myeni confirmed that SAA would most likely open up flights between Durban and Cape Town.

“We made a mistake by just closing the route altogether. We probably should have ... looked at the frequencies ... maybe, Monday, Thursday and Friday, instead of seven days a week,” she said.

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