SAA spiralling out of control

Recapitalising this airline would require at least R44.5 billion to wipe out the accumulated loss and the debt.
Picture: Shutterstock

With the end of apartheid, SAA was able to branch out around the world. In 1990 it became a division of Transnet, under the condition that it would be run on a commercial basis. However, when new entrants came onto the market, instead of improving its service and cutting costs, SAA behaved like the playground bully, trying to force out fledgling airlines by cutting fares. Wholly-owned by the SA government, SAA was in 2014 transferred from the Department of Public Enterprises to fall under National Treasury.

Having an overprotective parent, this cosseted child was never disciplined, nor punished. It was given sweets whenever it made demands. Today we have a debt-ridden, loss-making, flailing, money-sucking, incompetent enterprise – and now there are rumours that the airline may battle to pay the salaries of the very loyal SAA employees.

One cannot give credence to any non-audited figures made available to the public. It is thus necessary to take a step back and refer to the last annual report published, for the year 2015/16. Even then, the heads of the board of directors were firmly embedded in the sand, not taking any responsibility for inept management, and stating in the 2016 annual report that “cash flow will remain a critical issue until such time as the airline receives an equity injection to reduce its expensive reliance on debt funding”. Thereby the board reached out their open hands, requesting that “a more permanent appropriate capital structure is required for the airline”. And on the basis of this, the directors stated that they “have every reason to believe that the group and the company have adequate resources in place to continue in operation for the foreseeable future…”. The government duly granted a perpetual guarantee of R4.7 billion to ensure that the airline would qualify as a going concern.

Of concern, is that the only excuses given for bloated operating costs were the weaker rand and market pressures. The high interest costs were blamed on the reliance of debt funding. No mention was made of irregular expenditure. Nor was there any proposed plan to cut unnecessary expenditure, root out corruption, increase efficiencies, nor cull unprofitable routes. Now, no shareholder, not even the government, should continue to pour money down an ever deepening hole.

The audit report was fairly benign, referring to irregular and wasteful expenditure of R12.3 million (2015 – R121.2 million). To cut to the chase, the damning figure in the balance sheet is the R26 billion accumulated loss. Add to this the expected loss of R4.5 billion as at March 2017, and we have R30.5 billion. Total debt amounts to R14 billion. The SA government has already sunk R12.8 billion share capital into this venture.

Recapitalising this airline would require a further injection of at least R44.5 billion to wipe out the accumulated loss and the debt. This would not cover any increases in debt as at 2016/17, nor would it cover the losses made in the year 2017/18. Add to this would be the amount of capital that would be needed to improve the fleet.

In May, Treasury advised the National Assembly that it was considering various options to recapitalise SAA, including using the Public Investment Corporation (PIC) as a possible equity partner. The PIC has some R1.857 trillion under its control, of which 88.2% represents the Government Employees Pension Fund (GEPF). The GEPF members must be getting twitchy, as the GEPF issued a press release stating that the GEPF would not be funding the SAA, and that their retirement benefits are safeguarded through “proper administration and prudent investment”.

However, it appears that Treasury has just given SAA a lifesaver “injection“ of R2.2 billion so that it can meet the deadline imposed by Standard Chartered Bank. This amount was apparently transferred from the National Revenue Fund. In my view this is in contravention of Section 185(2) of the Constitution, which states that no money shall be withdrawn from the National Revenue Fund, except under appropriation made by an Act of Parliament in accordance with the Constitution.

Treasury has some explaining to do; not only how they got around the above clause, but also what their plan is to fund the further R9 billion that is due at the end of June. Further, SAA should release its 2017/18 audited annual report. Hopefully, this report will not be disclosing any further irregular nor wasteful expenditure, and will include a concise plan of how the Board intends to turn this loss-making airline around. The GEPF members should remain nervous though, if the government is to bail out SAA, they will ultimately be coughing up the money.

Oops! We could not locate your form.


Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in and an Insider Gold subscriber to comment.


you guys live in Africa – but have no idea how Africa works!!! let me tell you. they just LOVE their own national airlines – even poor old zim has got a brand new national airline. so SAA is going anywhere – other than digging into your pensions

Can’t imagine many Moneyweb readers have a government pension, as usual, it is those in the lower income bracket that will suffer but continue to support the ANC. This is Africa after all.

Everyone talks about laws how they are broken in SA as if that deters the regime in power.

Laws mean nothing and it was a matter of time before the intellectuals were removed and the real ANC took over and showed its true colours. Never trust ‘freedom fighters’

I think, somebody in SAA should explain to us what is happening to their FX hedgebook..this has cost them a ”arm and a leg” in the past, as a result of bad management and hedging decisions…

December at OR Tambo, there were 3 (seriously, 3) check-in counters dedicated for exclusive use by SAA staff members. The poor customers who actually paid for their tickets had to stand in ques while those who got free tickets received premium service. To me this was very telling of why SAA has gone down the drain.

Close down SAA – sell it or give it away. It’s nothing more than a joke and a very, very expensive one at that!

In SAA’s defense, they are forced to run certain routes which are unprofitable but have broader economic benefits.

The dilemma is if SAA cost us a 100m a year then it would be a drop in the ocean but 100bn over 10 years is just ridiculous.

I think we are starting to see the SoE wheels coming off, Transnet with their failed bond auction, Sanral and the etolling debacle, Eskom with their massive capital project overruns, SABC has half the advertising revenue now. Its all fun and games putting your unqualified mate in charge of complex businesses until you need to pay your employees at the end of the month.

It would be interesting to quantify how much the ANC has cost SA over the past 6 years, must be in the trillions.

True story :
a western journalist invited to the opening of a west african presidential palace , straight out of medieval france , says to one of their politicians”’does it not worry about all this opulence here( caviar ,best champagne etc) and people a few metres away are starving ?”
da blok mon he reply” in afrika da big mon he needs to be seen to be big”

“Recapitalising this airline would require a further injection of at least R44.5 billion..” At current rate that’s about $670m

Some $44m was found in a flat in Nigeria recently. A photo showed it took up a couple of rooms. If my Apple iPhone calculator is correct that means all this money would need about 16rooms.

Perhaps this puts things in perspective. How much tax do you pay per annum? How many lifetimes would you and your immediate family need to live to pay this amount in tax? What a bunch of idiots…

ZAR 44,5 billion is about US$ 3,4 billion

its a lot of money and also unthinkable – my guess is also that they hedged most of their forward book out at horrible Dollar/Rand levels….

the WHOLE country is spiralling out of control – if u ask me!!!!!

SOE’s have become a form of ”Black Monopoly Money / Capital”. But monopoly in reference to the game monopoly i.e. they are pissing money away as if it has no value and no opportunity cost just like monopoly game money. Being a South African has never felt this rotten to me.

Spiraling? – In a “flat spin” is probably more aeronautically correct and apt!

Clearly, their centre of gravity has gone too far backwards resulting them in being in a flat spin.

No amount of forward stick and opposite rudder will save them from their attitude….

End of comments.



Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.

Follow us:

Search Articles:
Click a Company: