Consultants appointed to help Government decide future course for SAA, SA Express

A notice (NT008-2016) on the website of National Treasury has confirmed that a joint venture between Bain and Company South Africa and Abacus Advisory has been appointed the “professional service provider(s) for developing the optimal group corporate structure for the realignment of the state-owned airline assets”. The Bloomberg news agency reports that the contract is valid for three months and was awarded last month.

This follows comments by Finance Minister Pravin Gordhan in his Medium Term Budget Policy Statement late last month. “There are a number of processes under way to rationalise State entities,” he said. “These include the … appointment of transaction advisers on restructuring the State airlines and the possible introduction of a strategic equity partner… .”

South Africa’s State-owned airlines are the South African Airways (SAA) group, composed of SAA itself, low-cost carrier Mango and SAA Technical (a maintenance, repair and overhaul business), and regional airline SA Express. Both airlines are able to function only because of State financial guarantees.

In the case of the SAA group, State financial guarantees worth R14.4-billion were increased by a further R4.7-billion in September. SA Express has a guarantee of R1.1-billion.

Last week, Deputy Finance Minister Mcebisi Jonas told the Parliamentary Standing Committee on Finance that any recapitalisation of SAA would not be funded by the State. “If we are going to recapitalise, it will be off balance sheet, it will not be done in such a way that it increases the government deficit,” he assured. 

He further stated that “serious” talks were taking place, involving the National Treasury, on stabilising the airline. Under consideration were rationalisation and either bringing in a private-sector equity partner for SAA, or recapitalising the airline with the details on “what form it will take and where it will come from” under discussion.

Jonas also reported that a new turnaround strategy for the airline should be completed early next year. A new CEO was expected to be appointed in February. A new board for the group had been appointed last month. Also in October, SAA reported making a loss of R1.5-billion in the 2015/16 financial year (FY), down from R5.6-billion in FY 2014/15. It expected to continue to lose money until 2021, but these losses should continue on a downward trajectory.

In September, Public Enterprises Minister Lynne Brown announced, in a letter to the Speaker of Parliament, that she would be unable to table SA Express’s  FY 2015/16 Annual Report by the required deadline. This was because the regional airline had been unable to meet the solvency and liquidity test of the Auditor-General. “The annual report and financial statements will be tabled as soon as the going concern status of the airline has been resolved and the audit has been concluded,” she stated.