SAA faces financial disaster

2014-06-08 15:00

South African Airways’ (SAA’s) finances are now in such a bad state that it wants to sell its own headquarters and “superfluous” aircraft engines and even take money from the company’s pension to keep its head above water.

City Press learnt from a reliable source last week that the beleaguered state airline suffered a massive loss of R2.7?billion in the latest financial year.

This is SAA’s biggest loss in the past five years and more than double the previous year’s total loss of R1.2?billion.

In addition, SAA’s financial shortfall is expected to reach R3.7?billion by September 2015.

This alarming forecast has forced the company to form plans, with the help of two consultant companies, to save the company from its plight.

But an internal SAA memorandum shows these interventions could bring the company even closer to the abyss and even land it on the wrong side of the law.

Amid these problems, transport and logistics company DHL is claiming millions of rands from SAA as the latter was apparently part of an illegal cartel, making it guilty of price-fixing in the US.

The memorandum to the SAA board, of which City Press has seen a copy, describes the company’s finances as a “looming disaster”.

McKinsey and Regiments Capital, the two consultants, therefore set up a plan to obtain up to R4.7?billion of “working capital”.

The more controversial bail-out proposals include SAA selling its fixed assets, including its head office in Kempton Park.

SAA’s fixed assets also act as collateral for its bank loans, so the sale of its properties can affect its ability to borrow more money.

Alternatively, there is about R30?million available as a surplus in the SAA pension fund. In the memorandum, it is queried whether the use of these funds would not be in conflict with pension legislation.

Francois van Dijk, a fund manager at MenteNova Investment Group, says the Pension Funds Act forbids employers from using pension funds unless the fund is liquidated. “The law is very clear about this,” he said.

The company may also consider selling “superfluous” aircraft engines to the value of R118?million, but a second source with insight into SAA’s management, said the company may have to later buy more expensive new ­engines if it gets rid of its spare engines now.

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