He said the discussions were initiated in the last quarter of 2012 when SA Express was experiencing serious cash flow problems. The R539m guarantee was less than SA Express asked for and was not available yet as the guarantee framework was still in the process of being finalised.
Chief executive Inati Ntshanga explained that the debt convenant with one of the aircraft financiers required SA Express to maintain equity at over R1bn at all times. This was breached when equity fell to R463m after adjustments were made for accounting errors.
Ntshanga said that R123m of the anticipated guarantee would be used for the aircraft funding structure; R316m for the short- and long-term facilities; and R100m for working capital and capital expenditure.
He said a cross-default clause in all the loans at the time meant that if it was in default on one it was regarded as being in default of all loans and it became necessary to cover all the airline's unencumbered debt.
The reduction of the airline's equity in 2010/11 meant that it no longer complied with the equity covenant in terms of its lease agreements for its Bombardier Q400 aircraft. Equity declined to R463m in 2010/11 from a restated R649m in 2009/10 while total liabilities climbed to R674m from R466m.
Also‚ because it made a loss the airline did not comply with the interest rate covenant in terms of its long-term loan.
The airline's 2010/11 annual report tabled in Parliament last week noted that it was engaging with its creditors and with the shareholder "to mitigate these risks".
SA Express reported an after tax loss of R187m in 2010/11 but the airline's chief financial officer Zanele Ngwenya said that on a sustainable basis - before taking into account all the adjustments that were necessary to correct accounting errors - it would have made a profit of R54m in 2010/11 and R177m the previous year.
Mabizela told MPs that there had been significant improvements in the financial management of the airline but that a lot of work was still required.
Oversight had improved since the auditor general took over from the former external auditors (Nkonki Incorporated) and the airline was working closing with the department of public enterprises on an continual basis. Intensive training of staff in the finance department was also underway.
Ntshanga told I-Net Bridge that the process of cleaning up the internal controls and financial processes had continued in 2011/12 but he was hopeful of promising results in 2013.
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