South African Airways in Limbo as State Considers Bailout

Paul Vecchiatto

(Bloomberg) -- South African Airways said it’s waiting for the government to tell it whether it will provide the national carrier with the money needed to keep flying, rendering it unable to publish its results for the year through March.

“SAA cannot finalize its annual financial statements within the prescribed time until the going concern status is confirmed,” the carrier said in a document submitted to lawmakers on Monday and circulated by the main opposition Democratic Alliance. To do this SAA would require additional equity or loan guarantees, which the government hasn’t committed to giving, it said.

SAA last made a profit in 2011, and successive plans aimed at turning it around have failed. While Public Enterprises Minister Pravin Gordhan has said the airline will undergo a “radical restructuring” to ensure its financial and operational sustainability, Finance Minister Tito Mboweni’s preference is for the airline to be shut down.

Preliminary analysis done by Bain Consulting last year showed SAA will need to cover liabilities of between 35 billion rand ($2.4 billion) and 48 billion rand if it is liquidated, while it would only be able to realize 5 billion rand to 6 billion rand from selling its assets. The National Treasury will have to settle 15.3 billion rand in bank debt and creditor guarantees prior to the airline being shut to avoid possible cross-defaults on other Treasury-backed loans, it said.

In October the government said it will repay SAA’s outstanding government-guaranteed debt of 9.2 billion rand ($629 million), support that Mboweni said the country couldn’t afford and had to end. But the airline said it needs additional working capital to keep operating, including a 2 billion-rand loan facility to enable it to pay November salaries and other creditors -- and that matter remained unresolved as of Nov. 25.

SAA also revealed that its net loss widened to 5.4 billion rand for the year through March 2018, from 5.3 billion rand the year before, as revenue fell 4.5%. Those results had also been delayed due to uncertainty over whether it could continue operating.

A corporate plan last updated in February forecast that the SAA would lose 5.1 billion rand in the year through March and 1.9 billion in the current fiscal year, before it reverted to profit in fiscal 2021. The airline’s finances have taken a hit since then, with a week-long wage strike by workers forcing the cancellation of a number of flights.

(Updates with working capital requirement in fifth paragraph.)

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