National carrier SAA’s revenue exceeded budget so far this year, it exited business rescue about 20 months ago and took to the skies again in September 2021, but it remains financially vulnerable, public enterprise minister Pravin Gordhan told MPs on Tuesday.
“The fact that you see positive news coming from SAA does not mean that it can sustain itself. It will still need external input, financially speaking. We have to start injecting more cash into SAA, and it is not going to come from the fiscus,” he said in briefing members of the standing committee on public accounts (Scopa).
SAA interim CFO Fikile Mhlontlo said the better-than-expected performance is due to business rescue and restructuring. The bottom line performance also improved. Regional and domestic flights total about 4,125 a month, and bookings average about 2,000 a day, he said.
“The airline has a real chance of taking off,” Mhlontlo said.
He told MPs that SAA plans to expand its operations by flying to more destinations with more frequencies.
Now the airline flies to eight destinations including Cape Town, Durban, Accra, Harare, Kinshasa, Lusaka, Lagos and Mauritius. Any more destinations depend on availability of fleet and profitability of additional routes, MPs were told.
There was a lot of pressure on SAA to service Gqeberha, but with only seven aircraft flying there are too few of them.
Gordhan and his deputy director-general, Melanchton Makobe, accompanied by SAA interim chair and CEO John Lamola as well as Mhlontlo, appeared before Scopa to answer questions on a wide range of issues including selling 51% of the airline to the Takatso Consortium.
Fiscal constraints
MPs wanted more details of SAA’s performance since it commenced scheduled flight activity on September 23 2021 with DA MP Alf Lees saying that simply reporting that it is above budget is unsatisfactory. That SAA still draws on the R2bn granted by the state for operations indicates that it is still losing money, he said.
EFF MP Veronica Mente wanted to know why government is selling SAA when it is experiencing a resurgence. Gordhan gave the history of SAA’s collapse during the Covid-19 pandemic, and said that even in today’s circumstances government will still sell SAA because of the constraints on the fiscus.
Gordhan insisted that information on the deal with Takatso is commercially sensitive and cannot be divulged in the highly competitive aviation industry as it could be used to gain competitive advantage.
Makobe said there is now a closed period during which regulatory approvals are being sought. Once the transaction is finalised and the deal becomes unconditional its details can be revealed. The terms and conditions of the transaction cannot be revealed during this closed period. Lees found that “completely unacceptable”.
Gordhan expressed frustration at it taking so long to finalise the deal. The memorandum of understanding with Takatso was signed in June 2021 and the sale and purchase agreement in February.
“One would have preferred that the process was concluded by December or even before. It just takes too long,” he said. The deal is expected to be finalised before the end of this financial year. He insisted that the deal is still very much alive.
Golden handshake
Addressing scepticism among MPs about whether Takatso can raise the R3bn over three years for working capital, Gordhan said sufficient technical work has been done to give government the assurance that Takatso does have the capacity to raise the funds.
Makhobe clarified the 33% golden handshake that government would hold in addition to its 49% stake in SAA. This would only give the government a veto right over issues of national interest such as that SAA will be the national carrier with its base in SA, and not over commercial matters.
Commenting on this week’s resignation of Gidon Novick as an SAA director, Gordhan said that it seems that “it was like having your cake and eating it” in that while Novick resigned as a director he has not withdrawn as a partner in the consortium, albeit a small one. There was a “sense of relief” over the development as there was a potential conflict of interest.
Novick, who founded Lift airline, said he resigned because of lack of access to information on the deal’s progress.
Mhlontlo said auditing of SAA’s financial statements since 2017/2018 is expected to be finalised by end-February.
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