Public enterprises minister Pravin Gordhan says that he has been “absolutely categorical” in talks with prospective airline partners that the government will not put any further capital into SAA other than what has been promised in the business rescue plan.
Gordhan and SAA business rescue practitioners briefed parliament’s standing committee on public accounts (Scopa) on Wednesday evening answering a range of questions on the new SAA, but leaving some crucial questions about the restart of operations hanging.
Gordhan has engaged RMB as transaction adviser in the search for a new equity partner for SAA and told MPs that several expressions of interest had been received. But, it was clear that prospective partners would not contemplate taking on SAA’s old liabilities and obligations, which Gordhan has persuaded the cabinet and the Treasury to cover with a R10.5bn budget allocation in the medium-term budget policy statement.
Since the announcement, the government has taken a public bashing from all quarters except for the ANC’s allies on the decision to divert money from other programmes to SAA.
“We have said absolutely categorically to our potential business partners as they have made it clear they will not pay for SAA’s restructuring costs, we are making it clear that government is not going to put any more money into this process, apart from those assets that we already have,” he said.
SAA’s assets were its brand, its intellectual capacity, and its routes and landing slots, he said. The company had returned all but eight of its 40 aircraft to the lessors and hoped to secure planes in the future on better terms given the number of aircraft standing idle across the globe. The remaining eight aircraft are owned by SAA.
In the end it was possible that SAA would not be majority owned by the government, Gordhan said.
The business rescue plan, which was approved by creditors on the July 14, makes provision for R2bn of start-up capital, which is part of the R10.5bn allocated in last week’s adjustment budget. However, the business rescue practitioners warned that when SAA restarted, a large number of tickets would not earn revenue as many customers would use old tickets bought before the business rescue and Covid-19 lockdown. The rescue plan allocates R3bn to cover this liability.
Apart from the ability to secure an acceptable partner, two big unknowns were left unaddressed by the briefing. The first were the assumptions and projections of trading losses that the new airline could be anticipated to make in its first years of operation. Gordhan’s assertion that no more funding would come from the government would imply that a future partner would need to cover these losses.
The approved business plan projected three years of substantial losses. But, said Gordhan, the world had changed since the plan was drawn up in July and these assumptions would now have to be revisited. Gordhan said he had to be frank with the public and make them aware that over the months between July and October, when there had been uncertainty over whether government would fund the rescue plan, SAA had lost market share.
“The incoming board and executives will have a difficult task to broaden market share,” said Gordhan.
Business rescue practitioner Siviwe Godongwana said that he was unable to share detailed assumptions and projections with the committee due to their commercial sensitivity.
A second unanswered question related to the recapitalisation of SAA’s subsidiaries — SAA Technical, Mango and Air Chefs — all of which needed funding, the approved business plan said. Gordhan said he was in talks with interested parties both for the entire SAA group, the airline alone and the subsidiaries.
SAA is under care and maintenance and can only resume flying when the R10.5bn flows to it, which will not be before January in terms of parliamentary processes.
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