Business

SAA told to pay up, or stop flying

2016-08-14 15:00

Beleaguered national airline SAA has to come up with financial assurances soon, lest its licence is revoked and its aircraft grounded

SAA has until the end of September to convince National Treasury to renew the airline’s licence assurances or face having all its planes grounded from October 1.

The airline’s financial assurances to maintain its airline licence will expire at the end of September. These assurances are different from SAA’s total guarantees of R14.4 billion provided by National Treasury to raise debt from financial institutions.

Treasury issued the assurances and will now have to indicate if it will continue to be a “sponsor” for the next term after it expires at the end of September.

Every commercial airline has to comply with the requirements of the SA Air Services Licensing Council, as well as the International Air Services Licensing Council, to protect the interest of passengers. Both these councils are located in the department of transport.

SAA has not released its official annual reports for the past two years. However, it did submit financials to the council on condition that they remain confidential. The council wants an assurance from Treasury that it will back SAA financially to remain viable.

Andries Ntjane, deputy director-general of licences and permits at the SA Air Services Licensing Council, this week told City Press’ sister publication, Rapport, that the council would remind SAA to hand over its new assurances in August.

In the past, the licences of smaller airlines were suspended when their financial assurances and financial statements had not been submitted in time or when the airlines did not comply with their licence provisions. These are meant to be submitted to the national and international councils within 90 days of the end of the financial year.

According to Advocate Phetole Sekhula, chairman of the International Air Services Licensing Council, it applies strict criteria when vetting assurances.

Among other things, the assurances are meant to protect passengers if the airline is forced to stop flying as a result of a problem being encountered, but tickets have already been sold.

Sekhula said SAA had already been hauled over the coals to obtain clarity about its financial position.

“We require written assurances from Treasury to underwrite any further requests from SAA for new routes.”

Sekhula said a recent example of the council intervening in an airline was that of Phoebus Apollo Aviation, which had its licence temporarily suspended because it had last submitted tax clearance certificates more than a year before.

In another development, SAA is likely to be pushed closer to bankruptcy and its losses will deepen following the ruling this week that SAA should pay nearly R105 million to the liquidators of defunct airline Nationwide.

On the horizon looms Comair’s damages claim for R870 million plus interest, that could amount to more than R1 billion. The case will be heard on August 22.

The Nationwide damages ruling follows SAA’s abuse of its dominant position from 2001 to 2005.

Earlier this year, SAA had less than R100 million left of its R6 billion guarantee that Treasury gave the airline in early 2005.

Aviation analyst Joachim Vermooten said that it had taken 15 years for SAA to face up to its transgressions of the Competition Act, which was far too long to be an effective deterrent.

Alf Lees, DA deputy spokesperson of finance, said the damages ruling was “just another nail in the beleaguered airline’s financial coffin”.

“SAA, under its [chairperson Dudu] Myeni board and under the protection of President Jacob Zuma, is bankrupt and ... continues to trade recklessly,” he said.

Lees put SAA’s trading losses at R11 billion over the past two and a quarter years.

SAA spokesperson Tlali Tlali told Fin24 that SAA was still considering the court ruling.

To make matters worse for SAA, Rapport is in possession of a report for the quarter to June that shows it recorded an operating loss of R1.388 billion.

Vernon Bricknell, former owner and managing director of Nationwide Airlines, told Fin24 this week that SAA had “tried all the tricks in the book”, but the law had finally prevailed and it “serve[d] them right”.

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