An Airbus A340-600 of SAA loads cargo at OR Tambo International Airport
Photo by: Duane Daws/Creamer Media
The Ministry of Finance announced on Thursday that a further financial guarantee for beleaguered State-owned South African Airways (SAA) had been approved by the Minister of Finance. The new guarantee is for R6.488-billion and means that the carrier has now been given guarantees totalling R14.4-billion.
In an explanatory note, the Ministry states that a “guarantee is not a transfer of money but allows an entity to borrow against it. It is an undertaking that government will take on the liability of the entity’s debt obligation in the event of a default.”
This further guarantee will, it noted, allow SAA to finalise its 2013/2014 annual financial statements. This in turn will permit the carrier to hold its annual general meeting on January 30.
There are six main conditions for the guarantee. First, the airline has one month in which to give the Treasury a comprehensive plan for the implementation of the interventions identified in SAA’s 90 Day Action Plan. This has to include timelines for achieving savings and the identification of which managers are responsible for making those savings.
Second, the government and SAA must jointly stress test and review the financial model and the refined Long Term Turnaround Strategy. Third, the carrier has three months in which to develop its network structure plans and fleet strategy and structure and to submit these to the government for consideration.
Fourth, the airline also has three months in which to identify where and how it can cut its operating costs. Fifth, SAA must draw up an implementation plan to strengthen its governance, including working capital management and internal controls and must submit monthly progress reports. Finally, the airline must provide the Treasury with weekly reports.
“As stated in the media statement issued on the 22[nd] December 2014, the Minister, the board, the acting CEO and the CFO [Chief Financial Officer] have agreed that to stabilise the company’s financial position, elements of the long term strategy must be implemented with speed even as the board continues to refine and update the strategy,” stated the Ministry in its press release. “In addition, short-term and medium-term milestones have been identified and will form part of the shareholder compact that the Minister of Finance will sign with the board.”