Erwin makes U-turn, will back SAA bailout
January 31, 2007
By AUDREY D’ANGELO
Cape Town - SAA will receive recapitalisation of hundreds of millions of rands from the government in the next few months to enable it to acquire more long-haul aircraft to expand its route network and increase the number of services.
This is a reversal of previously stated policy that followed an earlier recapitalisation when the airline lost R7 billion as a result of a disastrous decision to hedge against a falling rand when in fact the currency rose.
It was stated at the time that this would be the last major recapitalisation SAA would receive.
SAA chief executive Khaya Ngqula said last October that it would need recapitalisation to increase its fleet, but the money would come from investment by financial institutions.
SAA has been in discussions with Airbus and Boeing for up to three new planes, which could cost more than R3 billion. A spokesperson said details of the aircraft SAA would acquire were not available. But both manufacturers have full production lines at present and industry sources said SAA might have to lease planes rather than buy new models.
SAA's newest planes in use on long-haul routes at present are Airbus A340-300s, with a list price of $196 million (R1.4 billion) and A340-600s with a list price of $226 million.
The list price of new Boeing 777s ranges from $178 million for a 777-200 to $264.5 million for a 777-300ER. But prices are normally negotiable according to how many aircraft are ordered.
Discussing the SAA Bill, which makes SAA a stand-alone government-owned entity and makes provision for it to become a public listed firm at some time in the future, Alec Erwin, the minister of public enterprises, said yesterday in parliament that listing SAA would make it easier for it to attract investment.
If it were possible to make an initial public offering for SAA in the next 18 months the government would do it. But a favourable time to do so could be years in the future.
In the meantime, the airline's passenger numbers were rising nicely, he said. It needed to expand its fleet to take advantage of this and it could not be left with a weakened balance sheet, unable to do so.
"We will seek support from the treasury in the next essential capitalisation that has to be put into SAA in the next year. This comes under essential circumstances with exceptional needs," he said.
Discussing the SAA Bill, Erwin said the government would retain a controlling interest in it and in regional airline South African Express, which would also be moved out of Transnet.
SAA, as a national airline separated from Transnet and reporting directly to the government, would provide critical tourism and business links that would assist in creating international hubs in this country.
He stressed that SAA would not be able to "knock on the door" and receive money whenever it needed it.
Big improvements had been made in its finances. But it was not yet out of the woods and steps would have to be taken this year to improve its finances. It would have to reduce its costs across the board. Negotiations were in progress with the trade unions towards achieving this and it must improve its rate of return per passenger kilometre, he said.
But news that the airline would receive help from the government was received with indignation yesterday by representatives of European airlines competing with SAA on international routes, who are forbidden by the EU to receive subsidies from their governments. The representatives asked not to be named.
Gidon Novick, the joint managing director of BA/Comair, said the news came as no surprise since he believed that both SAA and its low-cost airline Mango were "making huge losses".
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