Nico Bezuidenhout. Picture: PUXLEY MAKGATHO
SAA acting CEO Nico Bezuidenhout. Picture: PUXLEY MAKGATHO

PRESIDENT Jacob Zuma took the surprising step on Thursday of moving South African Airways (SAA) from the Department of Public Enterprises, where it has been housed since 1994, and placing it under the Treasury.

SAA faces insolvency and requires urgent funding to prevent it from running out of cash. Projected cash flows turn negative in January, internal documentation says, and there is next to no equity on the balance sheet.

The announcement was part of a suite of decisions made by the Cabinet at its last meeting of the year on Wednesday. The Cabinet also announced new appointments to the boards of a range of state-owned enterprises, including Eskom and Transnet.

However, the biggest surprise was SAA’s move to the Treasury, which Cabinet members said had been done because "most of SAA’s problems are financial".

While internal SAA documents seen by the Business Day paint a dire picture of the national carrier’s finances, the move also provides Mr Zuma with a way to end the impasse between Public Enterprises Minister Lynne Brown and SAA chairwoman Dudu Myeni, who have been at odds since late October.

Ms Myeni is a close friend of Mr Zuma’s. She has been in dispute with Ms Brown since she suspended CEO Monwabisi Kalawe without giving reasons. Mr Kalawe’s suspension ends on Friday and a board meeting will be held on Friday to decide his fate.

Ms Brown will no longer oversee SAA and it is believed she was informed suddenly on Wednesday. Her spokesman, Colin Cruywagen, would not confirm this.

Acting CEO Nico Bezuidenhout spoke frankly about SAA on Thursday, saying that "there was not a lot of time to turn the business around".

Internal SAA documents show that unless it is able to raise a further government guarantee of at least R1.7bn immediately, it will not be able to finalise its accounts for the past year. The situation is so desperate that without immediate help, cash flows will turn negative from January and by September, the airline will face a funding gap of R1.7bn.

Mr Bezuidenhout said the move to the Treasury could provide "a more expedient government structure", as approval for strategy would need to be sought by only one government department, instead of two. "We have to restore solvency and liquidity … in order to get an additional guarantee," he said. Finalising the accounts for 2013-14 is essential for further borrowing.

The Treasury has already made it clear that additional funding will be provided only on the basis of credible business plans. These would have to include an immediate decision to rationalise routes and make other savings.

Mr Bezuidenhout would not comment on the size of the guarantee required but confirmed that it was SAA’s first and overriding priority. While a strategic equity partner has been mooted as a possible solution to the funding crisis, it is far from a done deal.

Any transaction with an equity partner would take up to a year to put in place, he said. Although there are signs of a cosying up between SAA and the United Arab Emirates’ official carrier, Etihad, which has been aggressively pursuing SAA for an equity deal, the shift to the Treasury could see a wider range of capital-raising strategies being explored.

While additional borrowing by SAA is unavoidable it will further damage the company’s fundamentals. Equity and reserves have been negative for nine of the past 10 years and borrowing costs are enormous.

"Borrowing costs are around R500m annually. SAA is one of the most geared airlines in the world. There is no equity on the balance sheet," said Mr Bezuidenhout.

After plugging the funding gap and stemming losses, SAA would still need to undertake a fundamental reorganisation of its assets. A long-term turnaround strategy approved by the Cabinet last year is now likely to be rejigged.