SAA – Flying into a crash landing

Issued by Alf Lees MP – DA Shadow Deputy Minister of Finance
28 Nov 2018 in News

The following speech was delivered in Parliament today. 

Madam Speaker,

South African Airways has, as a result of political interference, poor management and rampant corruption, consumed R 31,4 billion in “bailouts” that could have been used to stimulate the economy and to create jobs for South Africans.

There have been bailouts of:

  • R 0,7 billion in 2007;
  • R 1,6 billion in 2010; and
  • a staggering R 10,0 billion in 2017

Now SAA want yet another R 5,0 billion.

None of this huge amount of R 5,0 billion will be used to buy new aircraft or even to pay for a month or two’s jet fuel or salaries.

All of the R 5,0 billion will go straight to the banks and financial houses who have already lent the R 5,0 billion to SAA who have already spent all R 5,0 billion! There will be nothing left for SAA to use to fund the further losses they project for the rest of the financial year.

In reality SAA are extorting R 5,0 billion from service delivery to poor South Africans. Banks and other finance institutions, comprising of ABSA, Ashburton, Firstrand, Investec, MMI, Nedbank, Sanlam and Standard, have been complicit in this extortion. They lent R 5,0 billion to SAA knowing full well that SAA are running at massive losses and have no way of repaying the banks by the 30th of November 2018.

In the six months to the end of September 2018 SAA had already racked up losses of R 2,2 billion and they forecast a loss of R 5,3 billion for the full 2018/19 financial year.

What parliament should now do is to force the banks and other financial institutions who have lent R 5,0 billion irresponsibly to SAA to call in the government guarantees that underwrite their loans to SAA. Let the banks and finance houses face public exposure for their irresponsible lending to SAA.

Now we are told that SAA will be forced into liquidation if they do not receive another R 3,5 billion before the end of March 2019.

We were told that borrowing this additional R 3,5 billion from the banks was not possible as the banks required additional commitments. These additional commitments are presumably more unilateral letters of commitment from Finance Minister like the one that Minister Nene issued on the 26th of March 2018. This “letter of commitment” was clearly the basis on which banks and finance houses made the irresponsible loans of R 5,0 billion to SAA.

If the banks are not an option to provide the R 3,5 billion in cash required to keep SAA flying in the thunderstorm then what are the options for the government to provide the R 3,5 billion to SAA to prevent a crash landing.

Unless the Finance gets his way to shut down SAA, which seems unlikely given the smackdown that he received from President Ramaphosa, there are two clear options that the ANC government are likely to consider.

The one option would be to embark upon yet another dodgy section 16 of the Public Finance Management Act payment of the R 3,5 billion directly to SAA from the National Revenue Fund. This would follow the precedents set by the then Minister of Finance, Malusi Gigaba who made a pretense that the SAA funding requirement was an emergency matter in order to activate section 16 to pay SAA R 5,3 billion in 2017.

The second option would be to secretly approach the PIC to get the PIC to provide a loan to SAA in the same way that the PIC pulled ESKOM back from the brink of liquidation in early 2018.

Given the controversy surrounding the PIC and the appointment of an acting CEO such a move to raid the funds of pensioners to try to prevent an SAA crash landing would simply be immoral.

Of course, we should not forget the 2017 secret cabinet memo option of selling Telkom shares!

Right now, SAA is insolvent and is trading recklessly.

Under the present circumstances it will not be possible for the Board and management to stand any chance of nursing SAA back to profitability. They are spending all their time jumping from one funding crisis to the next with the false hope that poor South Africans will be happy to provide, like some rich uncle, the R 21,7 billion that SAA say they have to have in order to possibly, with no guarantees given, return SAA to profitability.

Apparently, the Auditor General has refused to accept that SAA is a Going Concern. Consequently, the SAA annual report that should have been tabled in parliament by the end of September 2018 has still not been tabled.

But even if parliament approves the R 5,0 billion bailout it will still not make SAA a Going Concern. In order for SAA to be a Going Concern, it needs to be able to trade for 12 months. This is not the case as SAA needs another R 3,5 billion just to enable it to trade until the end of the current financial year on the 31st of March 2019.

SAA cannot continue to be a drain of desperately needed money for poor South Africans. A line must now be drawn in the sand! The liability to the taxpayer must now be limited to the foolish government guarantees of R 16,8 billion issued by the ANC and not a cent more must be taken.

If SAA and the associated nearly 10 000 jobs are to be saved, SAA must be put into business rescue without delay. It will take robust action to cancel corrupt contracts and to right size operations and employee costs in order to prepare the airline for privatisation and recovery.