Explaining the R1.56-billion cash injection into South African Airlines proposed by Finance Minister Trevor Manuel's Budget last week officials of the Public Enterprises Department said that the cash will convert the R1.56-billion subordinated loan issued a year ago into equity.

"The overall equity position of SAA will not change," Andrew Shaw, the deputy director general: transport, told Parliament's public enterprises committee on Wednesday. "However the current substantial interest burden is reduced."

The loan was issued in March last year to cover costs related to the grounding of the B747-400 fleet, which was part of the airline's reconstruction programme.

Chris Smyth, the acting chief executive of the airline, told the committee that the interest payments in the current year amounted to R300-million. He said that the airline is currently operating profitably, but the bottom line shows a loss because of the interest payments and because of hedging losses during the year's fuel price volatility.

Highest debt levels

Shaw told MPs that SAA has the highest on and off balance sheet debt levels of any airline – even including American Airlines and Delta, currently under Chapter 11 bankruptcy protection. "The airline has a 1400 percent debt to equity ratio," he said.

Shaw, analysing the effectiveness of the struggling national carrier's restructuring programme, said that SAA failed to achieve effective organisational realignment within the proposed time frames, and though there have been improvements in revenue management, marketing and market share they have not achieved the restructuring targets. "While average fares have increased," he said, "load factors have declined as a result of the general economic downturn."

However Vera Kriel SAA's human resources director, who briefed the committee after Shaw, said that as of December last year the restructuring programme was 35 percent above its target and has already achieved the full year target for March of R2.3-billion.

She said that the only area which was coming up short on December 31 was human resources which is nine-million rand behind its target as a result of delays in negotiating a standardisation of conditions of service. She also explained hat some compromises had to be made by management in order to get a three-year wage deal.

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