South African Airways needs R5 billion. NOW.
That is what the national carrier’s new CEO Vuyani Jarana told Parliament’s Standing Committee on Public Accounts (Scopa) on April 24.
The R5 billion is in addition to the R10 billion it got from the fiscus in the previous financial year to restore its status as a going concern.
And that is nowhere near the end of it. Not even close.
According to deputy finance minister Mondli Gungubele SAA needs at least R20 billion in order to break even by 2021. That is R9.2 billion to repay debt that matures in March next year and another R12 billion to address its “negative equity position”.
To give a sense of scale, it cost about R27 billion to construct the Gautrain system. And Comair’s market capitalisation is R3 billion. R21 billion is equal to the allocation in the 2018/19 Mpumalanga provincial budget for education and amounts to 43% of the total provincial budget. At an operational level SAA loses money on each and every domestic and most international routes. In the first nine months of 2017/18 its loss was 71% above budget at R3.7 billion. Operating costs increased. Revenue and passenger numbers declined.
Expenses exceed income by R370 million per month.
To be profitable and compete with its peers, it needs new aircraft. It cannot buy new aircraft, because nobody would lend it money on the basis of its weak balance sheet. Jarana in fact called it a “catch 22”.
Against this background trade union Solidarity is planning to apply to the High Court to place SAA in business rescue. Head of Solidarity Research Institute Connie Mulder told Moneyweb the trade union will file its papers on May 15 and has decided on this course of action in an effort to prevent SAA from being liquidated.
Solidarity believes SAA can still be saved and with it, the jobs of a few hundred of its members.
Free Market Foundation executive director Leon Louw differs sharply. He says the only viable options are liquidation or privatisation. It is too late to “rescue” SAA, Louw says. “Bailing out SAA is financially reckless and irresponsible. The scale of the amount of money required is so gargantuan that it can never be fixed and it will certainly never be a going concern able to compete in the world of modern aviation,” Louw says.
SAA’s troubles are nothing new. In 2015 its own acting CEO Thuli Mpshe and legal counsel Ursula Fikelepi advised the SAA board that the group is financially distressed, trading under insolvent circumstances and therefore trading recklessly. The board should apply for business rescue or liquidation, they stated.
Moneyweb has seen a board resolution dating back even further, to September 19 2014 and signed by seven of the eleven board members, that SAA would proceed with business rescue proceedings unless government committed to providing a going concern guarantee within a week.
Transport economist Dr Joachim Vermooten points out that the court would only grant Solidarity’s application if it can show that there is a reasonable prospect of rescuing the group.
It is very late in the day for SAA, Vermooten says. Whether the court can be convinced, remains to be seen. The Auditor-General has stated that it is not a going concern. Vermooten further points out that over and above the required amounts provided to parliament, no number has yet been put to the turnaround plan.
A proper restructuring would require additional funds for SAA to buy out onerous agreements and employment contracts.
So far, the plans are totally unrealistic, he says. And even if the plan were realistic, it would have to be funded.
Vermooten says it will be much more efficient to wind down SAA in its current form and start a new, focused airline, free of all the legacy contracts, over-staffing, inefficiencies and culture of reliance on the shareholder.
This has been done before, he says.
When state-owned Swiss Air landed itself in trouble through over-expansion the Swiss government refrained from bailing it out and allowed it to be liquidated. It subsequently bought Cross Air and successfully converted it into Swiss International, an airline with a limited mandate that was later acquired by Lufthansa.
In a similar example the Belgian government decided against bailing out struggling Sabena Air. The provincial government in Brussels instructed Brussels Airline to service selected sustainable routes. This new airline traded profitably and was also later bought by Lufthansa.
Vermooten says rather than scaling down existing SAA operations, government should start a new airline that does not necessarily need to be government-owned in the long run. Such an airline, if it reflects the values of the South African nation, could still serve as a national carrier, Vermooten says.
He says government should carefully consider what it is it needs from the national carrier and only focus on that. Sell low-cost SAA subsidiary Mango, split SAA Technical into a separate business and consider listing it and sell Air Chefs, he says. When Scopa met the SAA leadership last week, Scopa chairman Themba Godi listened to all the plans to address the multiple problems at SAA. New policies, new staff, new inventory management systems, new IT systems….
Godi remarked that it sounds as if the theme is building a whole new airline.
Perhaps that is exactly what they should be doing.
Source: Read more on Moneyweb
The five months since the fall of Robert Mugabe have been far from easy for his successor, Emmerson Mnangagwa. Zimbabwe’s new government has made all the right noises towards the West and China.
The West has made some noises back, but is waiting on a free election. Despite a show of warmth towards Mnangagwa, China wants assurances that its future investments will be safeguarded and balance of payments support used responsibly – in short, a marked reduction in corruption.
Internationally speaking, Zimbabwe has started to re-enter the fold. But at home, Mnangagwa has yet to make a convincing case that real change is underway.
So far, there is no sign of Zimbabwe’s long hoped-for economic transformation; the same number of people are unemployed as before. But the problems go beyond the economy. Mnangagwa has yet to apologise for (or even plainly acknowledge) the Gukurahundi – a series of terrible pogroms that were inflicted upon the Matabeleland provinces in the 1980s for which Mnangagwa himself has often been blamed.
Taken together, this all means Mnangagwa has yet to earn Zimbabweans’ confidence as he tries to move on from the Mugabe years. And his lieutenants in power aren’t helping.
Mnangagwa’s vice-president, General Constantino Chiwenga, makes a far-from-convincing civilian ruler. Faced with striking nurses who were dissatisfied with a government pay offer, he simply sacked them all – as if he were still in the army and under no obligation to negotiate, or to value key workers in a health system that cannot be allowed to deteriorate further.
Behind the scenes, but surfacing just enough to be annoying, is Jonathan Moyo, a proxy for Grace Mugabe, who tweets incessantly about the illegality of the coup that brought Mnangagwa to power. And Robert Mugabe himself, while essentially impotent, is audibly grumbling. Mnangagwa wisely ignores these irritating background noises – but he could certainly do without them.
Step by step
The one bright spot is the new foreign minister, Sibusiso Moyo. Another former army general, who in fact announced Mugabe’s ousting on television, he recently secured from the British foreign secretary the declaration that Zimbabwe could rejoin the Commonwealth provided its next elections were clean. This he did at the Commonwealth summit in London – perhaps Boris Johnson had carefully pulled together a Commonwealth consensus before agreeing, but the announcement nonetheless made Moyo seem like a statesman who could deliver results.
Instantly, the Harare gossip circuit started touting him as Mnangagwa’s likely successor. That would bypass the hamfisted Chiwenga, but it would still hand power over to a military man, cementing the impression of a full-on military takeover.
Still, none of this looks set to affect the elections mooted for this year. With the death of Morgan Tsvangirai, the greatly weakened opposition has little chance of making headway – at least unless ZANU-PF keeps making unforced errors such as firing nurses en masse.
So what if ZANU-PF doesn’t start getting it right? Will its flustered leaders try to rig the polls yet again? It wouldn’t be all that difficult – and will be highly tempting if the party wants to win big. If the riggers do their homework and massage the results rather than blatantly falsifying them, they might well get away with it. But then again, ZANU-PF isn’t known for its subtlety.
Should he oversee and win a genuinely clean election, Mnangagwa could yet secure new inflows of liquidity. If he does, his next job will be to rein in the country’s greedy oligarchs. Too many in Zimbabwe’s elite still think their mission in life is to accumulate capital rather than circulate it, to buy cars and mansions rather than build industries, employ people and create things. Many think they still haven’t quite stolen enough to fund their indecently ostentatious habits.
The new Zimbabwe has very unpleasant growing pains ahead of it. To get the foreign help he needs to clean all this up, Mnangagwa will have to make iron-clad reassurances to the West, to China, to the IMF. And the IMF will surely demand public sector job cuts. Perhaps the nurses will have to be sacrificed again.
Fruit Loops cereal maker Kellogg Co topped Wall Street forecasts for first-quarter profit and sales on Thursday, boosted by stronger sales of snacks including Pringles chips and protein bars.
Though Kellogg has lowered the sugar content in many of its popular cereals to win back health-conscious customers, much of the Battle Creek, Michigan-based food company’s business today is driven by sales of snacks such as Pringles chips and RXBARs.
Highlighting the falling demand for cereal in the United States, Kellogg on Thursday also announced a $420 million investment in Nigeria’s Tolaram Africa Foods, its distributing partner in Africa, which makes noodles in addition to cereal.
It is the latest in a handful of deals Kellogg has sealed in the past few years to diversify its business, including the acquisitions of protein bar brand RXBAR and Brazilian snacks group Parati.
The company did not disclose additional financial terms of the Tolaram investment.
“Cereal consumption remained soft, though the company made progress toward stabilizing the key health and wellness brands, including Special K,” Kellogg said in its earnings statement. Kellogg’s sales rose 5 percent in the first three months of the year, the third consecutive quarterly increase, as shoppers also bought more Eggo waffles and veggie patties in addition to snacks.
Overall sales of $3.40 billion topped analysts’ expectations of $3.30 billion, according to Thomson Reuters I/B/E/S.
Kellogg said it expects net sales to rise between 3 percent and 4 percent in 2018 on a constant currency basis. The forecast includes gains from the Tolaram investment and translates to sales of $13.31 billion to $13.44 billion.
Kellogg’s net income rose to $444 million in the first quarter of 2018 from $266 million a year earlier. Excluding one-time items, Kellogg earned $1.23 per share, handily beating expectations of $1.08.
Kellogg’s stock rose 3 percent to $58.47 on Thursday morning.