Picture: SUNDAY TIMES
Picture: SUNDAY TIMES

THE Treasury said on Monday it was working closely with South African Airways (SAA) to secure sufficient funding so that the airline did not run out of cash.

SAA is facing a cash crunch following the cancellation last month of a R250m unsecured credit facility from Citibank. SAA did not respond to queries yesterday and the Treasury was tight-lipped, except to say: "We’re working closely with them to ensure there’s sufficient liquidity."

The move by Citibank highlights SAA’s increasing difficulties in raising finance, given its heightened risk profile of the past 12 months.

Former SAA chief financial officer Wolf Meyer warned the board on several occasions last year that the airline faced increasingly higher borrowing costs due to its deteriorating financial position. Also in November, an internal SAA memo warned that the airline had "haemorrhaged money" in the past month, and recommended holding back on payments wherever possible and repatriating all foreign earnings urgently.

The cancellation of the Citibank facility will add considerable stress to this picture. As of November last year, SAA still had R3bn in untapped guarantees — of the R14bn provided so far by the Treasury — that it could draw on for further funding. However, in a memo in November to the board, the GM for legal and risk, Ursula Fikelepi, said that even government-guaranteed funding had become more difficult to raise "as lenders are increasingly wary of assuming additional SAA risk".

With neither the Treasury nor SAA prepared to provide details on SAA’s financial circumstances at present, it is difficult to piece together a coherent picture of its status.

There are three sets of issues that need to be attended to: the immediate cash flow problems; the medium-and long-term funding issues; and the need for a further government guarantee in order for SAA to be considered a going concern, as at the end the financial year 2015.

As well as cash flow concerns, SAA’s long-term funding plan is also in disarray. A R14.5bn proposal by Mr Meyer to consolidate and restructure debt was withdrawn from the market twice after objections from SAA board chairwoman Dudu Myeni.

Negotiations to refinance existing loans last year also illustrated worrying signs when two financial institutions — Citibank and Standard Bank — were willing to offer extensions of one year only. Although SAA raised R5bn in debt last year, Mr Meyer noted at the time that "as much as the financing was achieved, it came at higher interest rates due to the deteriorating financial position of SAA".

In addition to its short-term and long-term funding needs, SAA has indicated that it needs an additional government guarantee of between R4bn and R5bn to be considered a going concern by its auditors at the end of financial year 2015.

The Treasury has said it is still considering the request.