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Aviation news

Endemic financial challenges face SAA

A survey conducted by Public Enterprises Minister Malusi Gigaba may hold answers to the endemic financial challenges facing South African Airways (SAA)‚ Gigaba's spokesman‚ Mayihlome Tshwete‚ said on Sunday (6 January).
Tshwete said the minister contracted a service provider in the last quarter of last year to conduct "scientific research" on SAA and the airline market‚ in a bid to properly understand why the national carrier kept coming back to the state for financial support.

This week reports emerged of another government bailout of R550m for SAA last month - for fuel costs and other short-term commitments - capping what had been a difficult year for the national carrier after it reported a R1.25bn loss for the financial year ending in March last year.

Tshwete said that December had always been tough for SAA. He said the company generates less revenue over the period but guarantees had already been put in place as part of the plan to turn the company around.

Tshwete said the December bailout was "not above and beyond the financial guarantees that the government had already made available for SAA".

Airlines had been battling the combination of high fuel prices and a surplus of capacity as economic conditions have depressed travel. In October last year the Treasury approved a R5bn state guarantee for SAA. This was necessary so that SAA's financial statements could be presented on a going-concern basis.

The company's annual report revealed that SAA incurred irregular expenditure of R128m (R85m previously) in the year to end-March last year‚ representing 0.6% of operating costs‚ excluding labour and depreciation. Fruitless and wasteful expenditure for the year amounted to R4m‚ of which R3m was related to baggage claims‚ penalties and fines‚ and therefore unavoidable. The report said these were costs "inherent in the aviation industry".

Tshwete said the research commissioned by the minister looked into the appropriateness of SAA's funding model; if there was evidence of financial mismanagement and whether the company was correctly positioned in the market.

He said the diagnostic report was intended to provide the minister with "insight".

"It will be used as a tool for the board's formulation of the turnaround strategy‚" Tshwete added.

Democratic Alliance spokeswoman on Public Enterprises Natasha Michael said privatisation of the national carrier was the only recourse‚ "and government can no longer hide behind the excuse of 'national pride' whenever privatisation is mentioned".

"There is no national pride in an airline that survives on repeated government bailouts‚" said Michael in a statement. She said the costs of running a national carrier far outstripped the benefits.


SOURCE

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