Budget 2021

SAA merger still on the cards as consultants finalise review


Cape Town – The merger of South African Airways (SAA) with South African Express, and the introduction of a strategic equity partner, are still being considered, National Treasury said in its 2017 Budget Review.

"Advisors are assisting government with a review of the state’s aviation assets," Treasury said in its 2017 Budget.

"The review is expected to be complete by the end of March 2017."

“The possibility of merging SAA with South African Express, and introducing a strategic equity partner, will be considered."

"During the next few months, proposals for putting the capital structure of SAA and the Post Office on a sound footing will need to be agreed," Finance Minister Pravin Gordhan told Parliament in his Budget Speech on Wednesday.

"I hope that this can be dealt with in the Adjustments Budget later this year."

Treasury first dropped the merger bombshell in its 2016 Budget Review, as it sought to stabilise the governance and financial stability of the national airline.

However, as was the case with Nhlanhla Nene, Gordhan has allegedly clashed with SAA chairperson Dudu Myeni, who is good friends with President Jacob Zuma and heads up his charity fund.

While rumours last week spread that Gordhan was going to fire Myeni during a board meeting last week, the minister said in his speech in Parliament on Wednesday that he had had a good meeting with the board.

"Last week, I met members of the board of South African Airways to discuss its turnaround plans," he said. "I am pleased to report that the challenges are well understood, and the advisory work that is in progress has clarified the way forward."

'Good prospects of turnaround'

Answering media questions on Wednesday, Gordhan revealed that Myeni did not attend the meeting.

"Unfortunately, the chairperson couldn’t avail herself for the meeting," he said.

"It was a constructive one. It demonstrated that the new board members have a good grip of the situation.

"We are optimistic that if we do the right things, and they do the right things – and find a new CEO CFO – there will be good prospects of the airline turning around."

With ex-Eskom CEO Brian Molefe set to be sworn in as a Member of Parliament either on Wednesday or soon thereafter, new rumours are circulating that Gordhan’s position is now under threat.

In September, the government granted the technically insolvent airline an additional going-concern guarantee of R4.7bn, increasing its total guarantees to R19.1bn.

SAA has used R3.5bn of a R4.7bn going-concern guarantee, with the remainder likely to be used in 2017/18. SAA pared its losses from R5.6bn in 2014/15 to R1.5bn in 2015/16.

"The improvement resulted mainly from lower fuel prices and lower asset impairments," said Treasury.

"However, the carrier remains technically insolvent. Its going-concern status depends on state guarantees totalling R19.1bn. Government continues to help SAA secure funding with its existing lenders."

Turnaround strategy

A new board appointed in September 2016 finalised the 2014/15 and 2015/16 annual financial statements, as required by law.

"The board is finalising the recruitment process for a chief executive officer and a chief financial officer. The process will be submitted for government’s consideration and approval," said Treasury.

It sees SAA’s liquidity constraints persisting over the medium term.

"Government will work closely with the board to reduce associated risks," it said.

"During 2017/18, government will provide some financial support to SAA in a manner that does not increase the budget deficit.

"The support will strengthen the new board’s ability to effect a comprehensive turnaround strategy that allows SAA to function on a financially sustainable basis."

* Visit our Budget Special for all the budget news and in-depth analysis.

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