Gigaba warns of wider consequences of an SAA default

Finance Minister Malusi Gigaba on Friday voiced frustration at the slow pace at which South African Airways was taking steps to stem its financial losses, and warned that defaulting on its debt payments could trigger a wider reaction from state-owned entities’ lenders.

Gigaba said one example was the fact that the technically bankrupt carrier had yet to cut remaining lossmaking routes.

“The delays in taking ourselves out of the Abuja-Johannesburg means we are losing millions of rands every month on that route,” he told Parliament’s standing committee on finance.

Gigaba said the company could save more than R1 billion every year simply by resolving issues with ticket sales, making cost savings in terms of staff incentives and stopping revenue leakages.

Dealing with these issues would be part of the conditions attached to the promised recapitalisation of the airline, the minister said, confirming he would only make an announcement on further financial support for SAA in his medium-term budget policy statement in October.

Responding to a question from ANC MP and former tourism minister Derek Hanekom as to where National Treasury would find the money to inject into SAA, he said the state was mulling this.

Hanekom had stressed that the recapitalisation would mean that the sum eventually extended would no longer be available for service delivery, noting that if the figure were R2 billion, it could have been used to build 20 000 low-cost houses.

Gigaba responded: “It is not just announcing a once 0ff, we need to announce a plan for SAA so that we know over the next three years, this is what we will be giving SAA on an annual basis.

“But there is no way we are going to be giving SAA money for free… we are not going to babysit it and treat it like a child. They must demonstrate to South Africans that they are right to be giving them support. We will also release the conditionalities attached to the recapitalisation.”

SAA has to repay its lenders R6.9 billion in maturing debt in September, and a cash flow analysis released this week showed that the airline would be short of R936 million this month.

National Treasury recently gave the airline a R2.2 billion bailout when Standard Chartered Bank refused to further extend a maturing loan.

Gigaba said the treasury had little choice, as letting SAA default would have scared other institutions who have lent money to South Africa’s state-owned companies and this could have had a dire effect on the economy.

“The risk of triggering a domino effect with regard to other debts, both at SAA and other state-owned entities, was quite high and it remains high considering the focus on our state-owned entities and the low confidence in the economy.”

He said Eskom had acted correctly to place chief financial officer Anoj Singh on special leave last week at the demand of the Development Bank of Southern Africa, after it threatened to call in its R15 billion loan to the electricity utility in response to mounting allegations that he was colluding with the Gupta family.

“If DBSA had exercised its options and called in its loan, the other class-one lenders would also have called in their loans and that is a significant amount of money. It would have thrown us into a financial crisis.

“We don’t want to find ourselves in a situation where lenders lose confidence,” Gigaba said, adding that ratings agencies continued to keep a close watch on the country’s parastatals.

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