SOUTH African Airways (SAA) had fine-tuned a viable, long-term strategy after "very tough" engagement with the government, but would need to be recapitalised to implement it, chairwoman of the state-owned airline Cheryl Carolus said yesterday. Once implemented, the airline would be able to fund itself in future.
Public Enterprises Minister Malusi Gigaba earlier this week said the government was only prepared to recapitalise SAA on the basis of a long-term strategy. It needed to find a more sustainable path.
The airline is understood to have requested R4bn-R6bn, either in the form of a state guarantee or a cash injection or both, in order to strengthen its balance sheet.
It needed this to fund the acquisition of fuel-efficient aircraft for expansion into Africa, Latin America and Asia.
Mr Gigaba told the Cape Town Press Club that any state support could not be of a short-term nature and needed to be reinforced in a few years time. Stringent conditions, including a "robust cost-cutting plan" would be attached to any financial aid.
Further, SAA would have to withdraw from unprofitable routes and focus on more profitable ones. Indications were that Latin America, Asia, the Middle East and Africa were the most profitable routes.
Ms Carolus said in an interview that SAA had already embarked on this strategy. Mr Gigaba and Finance Minister Pravin Gordhan had correctly been "extremely demanding" over SAA’s request for recapitalisation.
But the airline had been grossly undercapitalised, which meant it could not generate cash to fund its own growth, Ms Carolus said. It had been burdened with a "shockingly high" debt to equity ratio.
SAA had already received a R1.3bn subordinated loan and a R1.6bn "going concern" guarantee.
Ms Carolus said SAA had far less room for slippage than previously. It is now governed by a much tighter shareholder compact with the minister. For the first time, SAA had a competent and highly experienced management team, 50% of whom had risen through its ranks.
As with other leading airlines around the world, SAA is likely to have made a loss in the year to end-March. This would be a result of the effect of high fuel costs on margins and the high interest bill it has to carry because of its debts.
Ms Carolus would not comment on the results except to say that SAA had had to pay R2.2bn more for fuel last year than in the prior reporting period. It has indicated it expected to make a loss following two years of net profit of R782m in 2010-11 and R442m in 2009-10.
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