Treasury approves R6.5bn loan for SAA

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Johannesburg - South African Airways (SAA) will be provided an additional R6.488bn in state guarantees, taking funding pledges to R14.4bn, according to the National Treasury.

The national carrier must provide the ministry with comprehensive details of its 90-day action plan intended to restore solvency as part of conditions attached to the guarantee, the Treasury said in an e-mailed response to questions on Thursday.

The airline’s strategy must be stress tested by the government and SAA and it has three months to present a new structure, fleet strategy and plans to reduce costs, while improving governance, the Treasury said.

SAA is technically bankrupt and surviving off state-guaranteed loans as an aging fleet and unprofitable long-haul routes contribute to heavy losses. The airline presented a 90-day rescue strategy to the government last year that includes R1.3bn in annual savings.

The additional guarantees resolve questions raised by SAA’s auditors over the ability of the airline to continue operating as a going concern and will enable the company to release financial statements, Business Day reported today, citing Finance Minister Nhlanhla Nene.

In time for AGM

"The additional guarantee will enable SAA to finalise its annual financial statements for 2013/14, making it possible for the airline to hold its annual general meeting on Friday next week, 30 January 2015," Treasury said in a statement.

A guarantee was not a transfer of money but allowed an entity to borrow against it.

The ministry said it was an undertaking for government to take on the liability of the entity's debt obligation in the event of a default.

There were six conditions attached:

- Within a month SAA had to provide Treasury with a comprehensive implementation plan for its "90-day Action Plan" interventions. This included timelines for targeted savings and which managers were responsible for delivering those savings;

- Government and SAA would review and stress test the financial model and refine long-term turnaround strategy;

- SAA must develop proposals within three months on the network structure, fleet strategy and structure of the airline, for government's consideration;

- Within three months, the airline must identify areas where it can cut operating costs, and how those cuts would be achieved;

- SAA must strengthen governance, internal controls and working capital management, and develop implementation plans. Progress reports would have to be submitted monthly;

- The airline would also submit weekly reports to the Treasury.

SAA was one of three state owned companies transferred to the Treasury from the department of Public Enterprises on December 12 after Minister in the Presidency Jeff Radebe said Cabinet was concerned about their performance.

- With additional reporting from Sapa.

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