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Govt appoints consultants to help decide future course for airlines

2nd December 2016

By: Keith Campbell

Creamer Media Senior Deputy Editor

  

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A notice on the website of the National Treasury has confirmed that a joint venture between Bain & 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 reported that the contract was valid for three months and had been awarded in October.

This follows comments by Finance Minister Pravin Gordhan in his Medium-Term Budget Policy Statement in late October. “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 month, 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 and the “ form it will take and where it will come from”.

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 in October. 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.

The group’s budget airline, Mango, also made a loss in FY 2015/16. According to the Fin24 news website, which cited documents given to Parliamentarians, this came to R36.9-million.

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 stipulated 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.

According to its website, SAA currently operates a predominantly Airbus fleet, composed of eleven A319-100s, six A320-200s, six A330-200s, six A340-300s and nine A340-600s, plus eleven Boeing 737-800s. Five A330-300 airliners are on order. The A319s, A320s and 737s are narrow-body aircraft and the A330s and A340s are wide-body airliners. Mango operates an all-Boeing fleet of ten 737-800s. (It is not clear whether the SAA fleet list includes or excludes the Mango 737s.)

SA Express operates only regional aircraft, but both jet and turboprop types, and all produced by Canadian company Bombardier. According to its website, this fleet is composed of ten Q400 twin turboprops, ten CRJ 200 and four CRJ 700 jets (both types twin-engined).

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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