Debt-free SAA still needs cash
South African Airways is now debt-free and will not be requesting additional funding from the government.
However, the airline requires a cash injection investment through an equity share partner to reach a healthy financial state and return to its “glory days”.
This was outlined by SAA top brass and the Transport Minister to Parliament’s Standing Committee on Public Accounts (Scopa) on 22 October.
Over the past several years, it has been widely reported that SAA has been far from soaring.
In 2019, SAA, which had around R28 billion in liabilities, was placed under business rescue (which it exited in 2021).
This was said to be done to restore confidence in the airline, safeguard its good assets, and help restructure and reposition the entity into one that is stronger, more sustainable, able to grow, and able to attract an equity partner.
An agreement to sell 51% to Takatso for R51, with a R3 billion capital injection, was signed in February 2022. However, ongoing negotiations revealed disagreements over SAA’s reevaluated value, initially set during the peak of its crisis.
Late former Public Enterprises Minister Pravin Gordhan called off the deal and noted that public interest and fair market price were not adequately addressed in the renegotiations.
During this time, according to the Auditor General of South Africa, between 1 April 2018 and 31 March 2023, the South African government injected over R38.1 billion into SAA.
R27.6 billion of this was deposited into the airline after the business rescue process.
SAA was recently transferred to the Department of Transport (DoT) as its line department following the dissolution of the Department of Public Enterprises, and Transport Minister Barbara Creecy told Scopa that much smoother flying is to be expected.
“As it stands, SAA is debt-free and not looking for additional funding from the National Treasury,” said Creecy.
“Since exiting business rescue, SAA has repositioned itself as a leading national carrier, taking advantage of its ability to provide long-haul and intercontinental flight services and leveraging its partnerships with other airlines.
“The entity currently has 16 aircraft operating on three domestic, ten regional and two international routes,” added the minister.
Creecy assured MPs that SAA would not be privatised but welcomed equity stakes from development financial institutions, similar to the Public Investment Corporation’s investment in Airports Company South Africa.
She also mentioned ongoing discussions for a loan facility with financial institutions in case of difficulties.
To involve private partners or not involve them – that is the question
The Transport minister said that the government remains open to securing an equity partner for SAA, which “would assist in ensuring the ability of the airline to continue as a going concern and help to facilitate the expansion of regional and international routes.”
This sparked vigorous debate in the Scopa meeting, with MKP and EFF MPs sharing their view that they believe that private partners should steer clear of SAA as such involvement would equate to “privatisation of a state asset.”
However, SAA chair Derek Hanekom agreed that the airline needs a capital injection but stressed that the SAA board does not “have any interest, desire or appetite for privatising this airline because we think this airline can be made into a very valuable asset to the South African economy”.
“The issue of bringing in a share equity partner is the prerogative of the shareholder [the Minister of Transport] but the fact of the matter is if we are going to expand, we will need a cash injection.
“The question is where does the cash injection come from?” said the SAA chair.
“There is a clear distinction between privatising and getting investment,” said Hanekom, citing that Qatar recently invested in domestic airline Airlink “to the benefit of that airline.”
“As I understand, there is no question of privatising. We are not in the situation we [SAA] found ourselves in when we were under business rescue or when we just came out of business rescue,” said the chair.
He added that the SAA board’s responsibility is to do what is best for the country, the economy and the airline, and the airline does not depend on budgeting for any capital injections next year.
“It’s for the later years. If something transpires, that will obviously be welcomed, and it would be useful because it would mean that we would be able to bring forward some of the plans that have been pushed back because of the non-availability of the R3 billion [from Takatso],” said Hanekom.
“If a development finance institution wanted to take equity, that – I think – would be a good solution. We have that solution in ACSA [Airports Company South Africa], where the PIC owns equity,” he added.
Following the briefing, Scopa chairperson Songezo Zibi told Newzroom Afrika that “what we cannot avoid is the reality that the money has to come from somewhere.”
Zibi outlined that there are only three places where the money can come from either:
- Borrowing it with government guarantees;
- Appropriating that money for SAA (in other words, shift money from education and health and other things and make it available to the SOE); or
- Some form of private involvement.
“Now that’s being spoken about, it needs to happen and happen quickly if that is what the government has chosen to do, but we can’t keep talking about it at an ideological level and not solve the problem while the economy is dying,” said Zibi.
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