UPDATE: The litmus test; SAA turns to banks as state ‘stalls’ on bailout

By 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 finalise 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 R35bn ($2.4bn) and R48bn if it is liquidated, while it would only be able to realise R5bn to R6bn from selling its assets. The National Treasury will have to settle R15.3bn in bank debt and creditor guarantees prior to the airline being shut to avoid possible cross-defaults on other Treasury-backed loans, it said.

Read also: ‘Not too big to fail’ – Govt draws a line in the sand on SAA

In October the government said it will repay SAA’s outstanding government-guaranteed debt of R9.2bn ($629m), 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 R2bn 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 R5.4bn for the year through March 2018, from R5.3bn 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 R5.1bn in the year through March and R1.9bn 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.

South African Airways in funding talks as state wavers on aid

By Loni Prinsloo and Roxanne Henderson

(Bloomberg) – South African Airways is in talks with lenders including Standard Bank and Investec about funds to alleviate a cash crunch brought on by persistent losses and a week-long strike, according to people familiar with the matter.

Negotiations are also taking place with Absa, Nedbank and FirstRand’s Rand Merchant Bank, said the two people who asked not to be identified as the discussions are private. The state-owned company aims to raise enough money to pay salaries, fuel its planes and cover other costs until March 2020, they said.The banks all declined to comment.

SAA’s bid to obtain more loans isn’t assured, even if it secures state backing. When the carrier tried to raise the money needed to ensure continued operations for at least 12 months and to finalise financial statements for fiscal 2018, “lenders were not willing to extend facilities even on the strength of government guarantees,” it said in a document presented to lawmakers on Monday.

“The hesitant and inconsistent approach to addressing the recapitalisation of SAA has made it difficult for the board to conclude on its going-concern status,” the carrier said.

SAA last made a profit in 2011 and has failed to implement numerous turnaround plans. The carrier delayed publication of its financial statements for the year through March until its status as a going concern is assured – a contingency that will hinge on it securing more working capital.

The airline has received R57bn ($3.9bn) in bailouts since 1994 and Finance Minister Tito Mboweni has been reluctant to give it more money or provide guarantees to enable it to raise more debt, saying it isn’t viable and should be shut down. Public Enterprises Minister Pravin Gordhan has said SAA will keep flying and a “radical restructuring” will be undertaken to ensure its financial and operational sustainability.

SAA’s acting Chairwoman Thandeka Mgoduso confirmed the carrier’s executive committee is engaging unidentified lenders, the Treasury and Department of Public Enterprises to secure the R2bn it needs to pay November salaries and other creditors. The matter remains unresolved, she said in a Nov. 25 letter to parliament’s public accounts committee.

Gordhan’s spokesman Sam Mkokeli, and Mboweni’s spokeswoman, Mashudu Masutha-Rammutle, didn’t answer calls to their mobile phones seeking comment.

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