SAA ‘must learn to fly on its own’

Image courtesy Wikimedia Commons (Joe Ravi)

Image courtesy Wikimedia Commons (Joe Ravi)

Finance minister Nhlanhla Nene has made it very clear that state-owned companies (SOCs) like Eskom, SAA and Sanral have to stand on their own legs financially and government won’t use taxes or loans to bail them out.

Nene made this clear on Friday after South African Airways (SAA’s) annual general meeting where its financial statements for the year ended March 31 2014 were approved. This approval was earlier delayed as the airline was technically insolvent. Government intervened in December and extended SAA’s guarantees by R6.5 billion, which restored its balance sheet.

90-day plan

This assistance to SAA was given on the grounds of a sound 90-day action plan that ends on March 24. Nene said the plan will produce quick-wins, but it will take longer to restore SAA’s commercial sustainability.

Nene said given fiscal constraints over the next two years, recapitalisation of SOCs will only be funded in a manner that will not increase the budget deficit. It may entail the sale of non-strategic assets, including property, direct and indirect government shareholding in listed companies, non-strategic government shareholding in SOCs and surplus cash balances in state entities.

SAA reported a 12% increase in revenue and decline in operating losses to R374 million (FY2013:R425 million).

Acting SAA CEO Nico Bezuidenhout said where the long-term turn-around strategy was implemented, it did bear fruit. Domestic and regional operations for example grew by 10% and 17% respectively.

Bezuidenhout said the strategy was not implemented on intercontinental operations and, as a result, the loss increased with R235 million to a staggering R1.6 billion.

He said the route between Johannesburg and Beijing in China will be discontinued in the first week of April. Air China will start flights on the same route in May, which means passengers will still be served but not at a cost to the South African taxpayer.

SAA is currently making a loss of R30 million per month on the route. The total loss over three years amounts to R1 billion, he said.

SAA subsidiary Mango, headed by Bezuidenhout, reported a record profit.

Impairment charges

An impairment charge of almost R1 billion was recorded in the value of the airline’s seven wide-bodied aircraft and their spares. Bezuidenhout said their replacement with more fuel-efficient twin-engine aircraft is a critical element of the turn-around strategy.

A further impairment of R369 million relates to four new A320 aircraft that SAA received during the reporting period, due to annual price escalations. He said similar impairments can be expected on future deliveries in terms of the same legacy contract.

While SAA achieved cost savings of R450 million in the reporting period, this was way below Nene’s target of R1.3 billion.






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