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Cape Town - Finance Minister Nhlanhla Nene has briefed the media on the financial state of national carrier South African Airways and the future of the airline is pegged on significant financial streamlining which includes the dropping its R1bn loss-making Beijing route as of 1 April.
At the briefing held at Airport Park in Johannesburg, Nene outlined the significant costs impacting SAA, stating that guarantees to SAA topped at R14.4bn, with a further extension granted in December due to the lack of implementation of several critical aspects of the Long-Term Turnaround Strategy. To date, R8.3bn has already been utilised.
Also See: SAA cancels R1bn loss-making Beijing route
According to Nene, significant costs included a R782-million impairment relating to SAA aircraft.
“A critical element of SAA’s Long-Term Turnaround Strategy is the future replacement of its existing wide-body fleet with new generation, more fuel-efficient twin-engine aircraft,” Nene said.
“In this regard, the seven wide-body aircraft owned by SAA had to be revalued in terms of International Financial Reporting Standards (IFRS) to take into account their anticipated remaining useful life.
"This revaluation resulted in an impairment of R782 million, as well as an additional R192 million write down on related spares and inventory, which are reflected in the statements.
"Further impairments were recognised relating to the delivery of four new A320 aircraft. These form part of a legacy agreement for 20 aircraft, dating from 2002, which was renegotiated in 2009.
"However, the contract provides for annual escalations which resulted in the purchase price exceeding the market value at date of delivery—thus leading to a further impairment of R369 million. Unfortunately, similar impairments are expected on future deliveries on this contract," said Nene.
SAA’s remaining capital commitment for these purchases is R822 million.
Nene said it is the intent of the Board (reconstituted in October 2014) and SAA management to reduce the reliance on guarantees and return the business to relative stability.
A full review of the LTTS is also underway to ensure revalidation in line with the current needs of the business given SAA’s failure to adequately implement the plan Nene said.
“The Shareholder and newly-constituted Board have made it clear to Management that the 90 Day Action Plan’s primary outcome must be the resumption of LTTS implementation. The 90 Day Action Plan period ends on 24 March 2015, where-after implementation of a revalidated LTTS will be resumed, albeit trailing 16 months behind schedule.”
