SAA secures R3.5bn loan to keep operating until March

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SAA secures R3.5bn loan to keep operating until March

Unread post by Deanw » Tue Jan 08, 2019 2:22 pm

8 Jan 2019: News24
SAA secures R3.5bn loan to keep operating until March

South Africans Airways says it has secured the R3.5bn loan it needed to keep operating until the end of the financial year in March, providing temporary relief for the cash-strapped airline.

The loss-making flag carrier, which is battling cash flow challenges, is implementing a three-year turnaround strategy, and has said it needs a total of R21.7bn in loans over the same period.

SAA spokesperson Tlali Tlali told Fin24 on Tuesday that the R3.5bn, which has been secured from local lenders, was part of the R21.7bn funding requirement.

"The airline, working jointly with the shareholder was able to secure an undertaking from local lenders to make available the amount of R3.5bn to SAA," said Tlali.

e said the funds would enable the airline to operate up to the end of the financial year in March. In October, the National Treasury allocated R5bn to SAA, as announced during the medium-term budget policy statement.

The funds were directed at debt repayment.

Tlali stated that there was no expectation that SAA was going to become profitable before 2021, stressing that plans were underway to steer the airline out of its financial quagmire.

"We are working towards the goal of becoming profitable by 2021, there is no plan of shifting the goal post," he said.

In need of funds

SAA interim chief financial officer, Deon Fredericks, revealed in November 2018 that the national carrier needed to raise R3.5bn by March, as it battles operational and financial challenges.

Briefing the portfolio committee on public enterprises, Fredericks said the airline expects to incur losses of R5.2bn in the 2018-19 financial year and R1.9bn in the 2019-20 financial year, after reporting a net loss of R5.7bn in the 2017-18 financial year.

Plans to turn around the flag carrier included the implementation of capacity adjustment in the domestic market and network optimisation in the regional and international markets.

Tlali said on Tuesday that some of the key loss-making routes included the Johannesburg to London link which had been “bleeding cash” due to stiff competition, but its performance had stabilised following remedial interventions adopted by the airline.

On the domestic front, the route between Johannesburg and Port Elizabeth was not performing well.

The airline’s Chief Executive Officer Vuyani Jarana, who was appointed in August 2017, and the new board, have been working to stabilise the financial situation of the company which has been battered by mismanagement, and has been a recipient of numerous government backed loans and guarantees.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by SlowApproach » Tue Jan 08, 2019 3:35 pm

Any bets SAA's gonna bleat soon that 3.5 beelyjon is actually too little to keep it going 'till March?
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by evanb » Tue Jan 08, 2019 3:50 pm

SlowApproach wrote:
Tue Jan 08, 2019 3:35 pm
Any bets SAA's gonna bleat soon that 3.5 beelyjon is actually too little to keep it going 'till March?
Sure, the article is pretty clear that the loan will be used to roll over other debt that is due in March (as the article says "funds were directed at debt repayment"). This is a positive sign since only a few months ago domestic banks wouldn't loan SAA money even with government guarantees. They must have seen enough of an improvement to make this loan.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by GL » Tue Jan 08, 2019 4:01 pm

evanb wrote:
Tue Jan 08, 2019 3:50 pm
SlowApproach wrote:
Tue Jan 08, 2019 3:35 pm
Any bets SAA's gonna bleat soon that 3.5 beelyjon is actually too little to keep it going 'till March?
Sure, the article is pretty clear that the loan will be used to roll over other debt that is due in March (as the article says "funds were directed at debt repayment"). This is a positive sign since only a few months ago domestic banks wouldn't loan SAA money even with government guarantees. They must have seen enough of an improvement to make this loan.
I agree - I just wish Jarana would take a leaf out of what IINM was Nico Bez's 90 day plan playbook by reporting quarterly on progress. We just have to take his word that he is still on track to profitability by 2021 - or has that now slipped to end 2021?
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by evanb » Tue Jan 08, 2019 4:33 pm

GL wrote:
Tue Jan 08, 2019 4:01 pm
I agree - I just wish Jarana would take a leaf out of what IINM was Nico Bez's 90 day plan playbook by reporting quarterly on progress. We just have to take his word that he is still on track to profitability by 2021 - or has that now slipped to end 2021?
Financial reporting is not the responsibility of the CEO but the board.

I agree with the principle of greater transparency, however, it could also get used against them since quarterly results are still going to show significant losses and cash flow problems and that is all people will focus on, not the improvements.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by Mouser » Wed Jan 09, 2019 7:06 am

Feel free to flame me as needed as this is a bit of a rant but I get a feeling that no one in what passes for government in SA today either understands or cares how sick and infectious SAA and Eskom (and a few other entities; municipalities etc) really are. If they did the "patients" would be in intensive care and hooked up to every monitor possible providing continuous data to assess the measures being taken.

It just seems to be same old, bottomless pit, money grows on trees, no real expertise needed attitude. I also suspect that real decision making at SAA (and Eskom) is above even Jarana's and the "board's" pay (well authority) grade up to maybe Gordhan, probably theoretically Ramaphosa, particularly in an election year. Problem is that these "leaders" have other priorities (and very limited actual power and expertise), primarily voters and winning the election. I do not see any light at all.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by cage » Wed Jan 09, 2019 9:04 am

Mouser wrote:
Wed Jan 09, 2019 7:06 am
Feel free to flame me as needed as this is a bit of a rant but I get a feeling that no one in what passes for government in SA today either understands or cares how sick and infectious SAA and Eskom (and a few other entities; municipalities etc) really are. If they did the "patients" would be in intensive care and hooked up to every monitor possible providing continuous data to assess the measures being taken.

It just seems to be same old, bottomless pit, money grows on trees, no real expertise needed attitude. I also suspect that real decision making at SAA (and Eskom) is above even Jarana's and the "board's" pay (well authority) grade up to maybe Gordhan, probably theoretically Ramaphosa, particularly in an election year. Problem is that these "leaders" have other priorities (and very limited actual power and expertise), primarily voters and winning the election. I do not see any light at all.
You need to separate the bad vibes and general political unhappiness from what is going on, though obviously these are contributing factors.
Much of this has been covered in the various threads over the years.
There is no quick and easy, plug and play, option. International businesses have big issues with turnaround strategies and they lack the baggage of SAA.
Finding the "right" people isn't easy, and while someone may promise the world, being able to deliver is much more difficult.
Big business turns about as fast as the titanic and it takes time to implement any strategy, which requires money.
SAA can't just be bulleted now, the cost of doing so would be severe for the economy, it is cheaper to try recover it.
Transparency would be good, all the public sees is money going in and assumes the worst, possibly rightly so.
I will not comment on eskom and the other bits you mentioned as it has no place here and will move the topic into the prohibited political sphere.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by HJK 414 » Wed Jan 09, 2019 10:26 am

cage wrote:
Wed Jan 09, 2019 9:04 am

.........SAA can't just be bulleted now, the cost of doing so would be severe for the economy, it is cheaper to try recover it.

I disagree.

There are sufficient market players that would absorb the demise of SAA /so the flying public would be served - probably at the same level - without any "isolation" of South Africa or it's cities.

If we look at the "cost" of the proposed turnaround - namely 21 Billion Rand - to a level where SAA may or may not run at break even (no payback of any funds or loans yet !) - one has to wonder whether it would be better spent by creating employment for 210.000 (two hundred and ten thousand!!) people at a salary of 100.000 Rand per annum.

Those people would spend the money in the economy - would pay taxes and would be able to participate in an already very skewed society.
Spending the money on the Parastatal without any direct influence or growth towards the already fragile economy is short sighted and a political indulgence.

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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by cage » Wed Jan 09, 2019 10:41 am

HJK 414 wrote:
Wed Jan 09, 2019 10:26 am
I disagree.
Disagree all you like, the economy cannot withstand the blow that would result from all the debt becoming due, which would be required to close the airline, not to mention what that would say to the markets.
Servicing the debt while narrowing the losses is a better alternative.
You can be as idealistic as you like about job creation, it isn't going to happen any time soon not helped by the economy.
The nation needs to manage the SAA debt, assuming they are making progress in reducing losses and implementing a strategy to move towards profitability, this is the least painful way forward.
They may actually turn the mess into something that someone wants to acquire, that has value.
The airline could still be an asset, but most can't get over their inherent political bias to try see that.
What we need to see are proper public statements about the state of the changes, any other listed business would be trying to show what is being done to their shareholders and the public.
As long as all that is seen is money being asked for and no results being shown, the told-you-so and hell-in-a-handbasket brigade will continue to bay for blood.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by GL » Wed Jan 09, 2019 10:51 am

HJK 414 wrote:
Wed Jan 09, 2019 10:26 am
cage wrote:
Wed Jan 09, 2019 9:04 am

.........SAA can't just be bulleted now, the cost of doing so would be severe for the economy, it is cheaper to try recover it.
If we look at the "cost" of the proposed turnaround - namely 21 Billion Rand - to a level where SAA may or may not run at break even (no payback of any funds or loans yet !) - one has to wonder whether it would be better spent by creating employment for 210.000 (two hundred and ten thousand!!) people at a salary of 100.000 Rand per annum.
A small but important correction - the budgeted cost of turning SAA around is R12 billion - the other R9 billion is debt repayment - a lot of which comes due in the next 3 months. This latest R3.5 bn is not additional funding - or a lifeline - it is debt roll over by the banks.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by HJK 414 » Wed Jan 09, 2019 10:53 am

cage wrote:
Wed Jan 09, 2019 10:41 am

Disagree all you like, the economy cannot withstand the blow that would result from all the debt becoming due, which would be required to close the airline, not to mention what that would say to the markets.
Servicing the debt while narrowing the losses is a better alternative.

They may actually turn the mess into something that someone wants to acquire, that has value.

Cage,

There is No way that SAA will ever create enough ROI - to generate a sale that will cover the outstanding capital / loans .....
There are no assets - it is a pipe dream / look at the balance sheet - it is an open book.

Servicing the debt is the same as converting the debt into government bonds (the banks would jump at it) - without the risks associated with the airline ...... and whether you spend the Billions on employment - healthcare - education ...... but at least spend it on something that adds value to the South African society

JK
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by Darren » Wed Jan 09, 2019 11:47 am

As Guy and others have pointed out, the majority of the amount required is to roll over debt, which South Africa cannot afford to have SAA default on. The follow-on contagion hitting local funds, banks, market confidence, etc would be devastating right at the point where our economy is at its most fragile. Moreover, any elements of that debt that are government-guaranteed, which may be most of it, would have to be paid by the SA government in any case to avoid the even more catastrophic scenario of a sovereign default.

The SOE debt balloon left over by the Zuma administration is phenomenally toxic and dangerous, and there really isn't any other option but to bring the SOEs up to a more or less operating state and to service that debt as best as possible until outside investment can be found.

That's all on top of the social and technical implications of SAA failing overnight, which will be similarly dire. Other operators would not be able to absorb the jobs and capabilities that quickly as none are sitting on piles of ready cash for rapid investment, with at least one immediate consequence being a huge drop in air travel capacity between major cities. Last I checked SAA and Mango have somewhere around 50% of the domestic travel market, meaning that if they stopped operating domestic air travel in South Africa would halve.

In short, even if you believe that SAA should be sold off, I don't see how there's any alternative to the current stabilisation strategy.
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by Mouser » Wed Jan 09, 2019 2:50 pm

Thanks Cage but I brought up Eskom because there is a good article (to me anyway) in Daily Maverick about how it's debt should be converted (as has been suggested for SAA?) to state debt as the borrowing entity can simply never pay it off; practically anyway (and it seems to be expensive (high interest rate?) debt). But there seems to be no indication that this concept is understood or being considered. Maybe this debt, already in the red warning light zone of >50% of GDP would start approaching 60% for SA which I understand is IMF bailout territory.

As to big business being slow to turn, I was very friendly with the CEO of a business whose parent company was listed in London. Quarterly reporting to investors was a stressful affair and a great deal of detail was needed (from financials to safety) as you could be asked anything. If / when your business took a wrong turn the analysts were merciless on you and the share price; mostly necessitating some emergency and immediate well publicised / agreed action (often amputation surgery).
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by GLF4 » Wed Jan 09, 2019 5:42 pm

My 2c, if SAA was a private company and not a parastatal, it would have gone the way of Nationwide, 1Time, Monarch etc...

Nuff said...
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Re: SAA secures R3.5bn loan to keep operating until March

Unread post by Jack Welles » Wed Jan 09, 2019 7:39 pm

GLF4 wrote:
Wed Jan 09, 2019 5:42 pm
My 2c, if SAA was a private company and not a parastatal, it would have gone the way of Nationwide, 1Time, Monarch etc...
Nuff said...
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