South African Airways in Talks With Banks as Deadline Looms

JOHANNESBURG (Capital Markets in Africa) – South African Airways is in talks with lenders about reviewing the terms of 9 billion-rand ($692 million) worth of loans due at the end of the month, and may have to tap government debt guarantees that are keeping the state-owned airline in operation.

One bank has told SAA that it wants to be repaid by the end-June deadline, the Johannesburg-based carrier said Monday, without giving further details. Standard Chartered Plc refused a request to extend a loan facility, South Africa’s Sunday Times newspaper reported, citing people it didn’t identify. SAA owes the bank 2.3 billion rand, the newspaper said.

“SAA has been in contact with its lenders to renegotiate the management of its loans, a normal occurrence when loans become due and payable,” the airline’s acting chief executive officer, Musa Zwane, said in an emailed statement. “The renegotiation of the terms of the loans are ongoing and SAA is optimistic that the airline will continue to operate.”

The carrier has 19.1 billion rand in state guarantees, a safety net that is effectively keeping SAA solvent after six consecutive unprofitable years. The government is considering ways it can help the airline return to financial stability while weighing offers for a minority stake, Finance Minister Malusi Gigaba said last month. For its part, SAA has made “significant headway” toward a five-year plan aimed at returning the company to profit.

Undesirable Situation
“SAA has a weak balance sheet, relies heavily on government guarantees to remain operational and has not been profitable in the last few years,” the airline said. “The situation is not only undesirable but unsustainable and this led to the development of the turnaround plan that has been put in place.”

SAA hired U.S. aviation consultancy Seabury Group in January to advise on the plan.

“If SAA has failed to repay some of these loans, it could force other creditors to recall their loans, which would then necessitate the government to step in and pay,” the opposition Democratic Alliance party said in a statement. “This money would ultimately be taken from the public purse and could have dire consequences for the sovereign rating status of South Africa.”

The debt deadline is approaching amid a vacuum in SAA’s senior management. A potential permanent CEO is set to be reviewed by parliament, with Zwane indicating he has no interest in taking on a role he has filled on an acting basis since November 2015. Meanwhile the board has asked lawyers to examine Chairwoman Dudu Myeni’s conduct after she missed six special board meetings, the Johannesburg-based Mail & Guardian newspaper reported on Thursday.