Final bill for SAA rescue still soaring

01 March 2020 - 00:00 By ASHA SPECKMAN



The National Treasury expects to have to pump even more funds into SAA than the nearly R23bn outlined in finance minister Tito Mboweni's budget this week. Aviation analysts said the state carrier could incur at least another R2bn in costs as it restructures as part of a business rescue plan. Business rescue practitioners Les Matuson and Siviwe Dongwana were put in charge of SAA in December and were due to publish their plan for the airline by the end of February. They said on Friday they had been given an extension of one month.In the Budget Review this week the Treasury said it had set aside R16.4bn over the next three financial years to pay off some of SAA's debt and meet debt-servicing costs. An additional allocation of R6.5bn to absorb current losses was also made. The airline has not made a profit since 2011 and has incurred net losses of more than R32bn since financial 2009. "Government anticipates that additional funding will be required to cover restructuring costs in line with the business rescue plan," the Budget Review said.Treasury officials could not be reached to provide further details, but aviation economist Joachim Vermooten says downsizing of an airline's operations carries its own costs. Matuson and Dongwana have already cancelled several SAA routes, which Vermooten says will involve buying out the airline's contracts to serve these destinations. Vermooten says other costs include settling employment contracts with staff who lose their jobs, and cancelling leases for aircraft and other equipment that are no longer needed can incur penalties. The business rescue plan will probably require the renegotiation of supplier agreements, with new prices and conditions, Vermooten says. Changing existing contracts could trigger penalty clauses. "The actual cost of restructuring . You need to negotiate yourself into a position that you exit certain assets or agreements or procurement of services. That requires further money."Vermooten estimates these additional costs could reach R2bn-R2.5bn. He says the newer-model Airbus aircraft that SAA is leasing "would fit in with a scaled-down international service". The business rescue plan is expected to spell out what size fleet the restructured SAA will require. Lumkile Mondi, a senior economics lecturer at Wits University, says the government appears to have decided to "play a bigger role in the economy than before", and is now prepared to run costly and struggling state-owned enterprises (SOEs) such as SAA and Eskom "at all costs".But this will weigh on the state's debt burden. "In the next five years [the state] will pay a huge amount of money to repay capital. They will be pressed to raise a lot of money through [borrowing]," says Mondi. The Treasury says that over the past 12 years the government has supported financially distressed SOEs to the tune of R162bn, of which Eskom alone accounts for 82%.In this year's budget, the government increased support to SOEs by R60.1bn over the medium term.The financial performance of SOEs has deteriorated sharply, with liabilities growing faster than assets, which led to a decline in net asset value. "This erosion of financial value is largely a result of weak revenue growth, high compensation costs and rapidly growing debt-service costs," the Treasury said. It announced it would introduce a remuneration framework for public entities and SOEs this year. "One goal of this legislation is to eliminate excessive salaries and bonuses being awarded to executives and managers."

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