Wednesday, May 1, 2013

■ SOUTH AFRICA: Now SAExpress needs $60million in state funding to cover debt covenants with aircraft suppliers.

SA ExpressSA Express (XZ) is in the process of finalizing a USD60million (ZAR539million) state guarantee (read Bailout) needed to help it cover the terms of various debt covenants. The funding however, falls far short of its originally requested USD111million (ZAR1billion) extension.

SA Express route networt
SA Express' route network
During a session before the South African Parliament’s Public Enterprises Committee, both the carrier's chairman, Andile Madizela, and CEO, Inati Ntshanga, explained that owing to serious cash-flow problems at the SA Express in the last year, the South African regional operator has seen its equity holdings fall to ZAR463million, below the ZAR1billion minimum stipulated in the carrier's debt covenant with one of its aircraft financiers.
"Mr Ntshanga said 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 on all, and it became necessary to cover all the airline’s unencumbered debt.

The reduction of the airline’s equity in 2010-11 meant 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."
Source [BusinessDay]

On the issue of SAExpress' recently announced loss of USD20million (ZAR187million) for its 2010/2011 Financial Year (whose annoucement was delayed some 2 years owing to accounting irregularities), Mr Mabizela said "significant improvements in the financial management of the airline" had been made but that "a lot of work was still required."

Regarding the irregularities, which stemmed from an error in the treatment of an amount for USD3.5million (ZAR32million) for VAT that the company would not have been able to claim from the South African Revenue Service (SARS), the SA Auditor General's Office has found that while no fraud was detected, "financial mismanagement, a lack of internal controls and a shortage of expertise had contributed to the malaise at the airline", which its former auditor, Nkonki Incorporated, said was not viable as a going concern without recapitalisation by the state.

SA Express request for added government funding follows hot on the heels of big brother, South African Airways (SA), who over the course of the last 12 months, has requested nearly USD660million in state funding to help prop it up. Funding was dependent on the preparation of a viable turnaround plan, Turnaround Plan #9, which was recently presented to the Ministry of Public Enterprises, Malusi Gigaba, for government approval.