He warned that the airline’s precarious financial situation was likely to deteriorate even further as it was severely under capitalised and burdened by debt, which exceeded its equity by 10%.

SAA’s image has in the past month been battered as a result of a series of drug scandal involving its flight crew.

SAA is expected to post a significant loss for the year to March for the third year running because of interest payments well in excess of R300m (about $30m) and losses from hedging against the volatility in the fuel price. SAA suffered a loss of R1bn last year, and its loss was R833m the year before.

“No business could survive in the long term with such a load,” he told the portfolio committee during a briefing. “It was just not sustainable,” he added.
The economic meltdown would make the situation worse as passenger volumes and revenue slumped.

Public enterprises deputy director-general in charge of transport Andrew Shaw also warned that SAA was “very inadequately positioned to deal with the recent turbulence in the aviation market. It remains very thinly capitalised.”

SAA’s level of indebtedness was among the highest in the world, and was even higher than those of American Airlines and Delta, which were placed under bankruptcy protection, Shaw said. He noted that 35 medium-sized network airlines were liquidated last year.

About R300m in interest has been paid this year on loans taken out against government guarantees of R2.86bn, and even more for the airline’s total debt book.

SAA also has a liability of more than R1bn for its Voyager loyalty programme, which has still to be taken on to its books.

Request

The Treasury recently turned down an SAA request for a R5.2bn capital injection, which would have brought the percentage of debt to equity down to a more acceptable 60%-70%. Instead, SAA got only R1.6bn in the 2009-10 budget.

In the last two months two crews were arrested over illegal drugs.

Last month the British authorities questioned another SAA crew at the same airport after large amounts of drugs were found in the luggage aboard a plane at London’s Heathrow airport.

At the time customs authorities at the airport said 50 kilograms of cannabis, estimated to be worth 150,000 pounds (208,000 dollars), and four kilograms of cocaine worth 160,000 pounds were found in baggage.

In that incident, all 15 crew were held for questioning at Heathrow and released on a warning. Two people, one an SAA air hostess, were later arrested at the airline’s headquarters in Kempton Park, east of Johannesburg.

Critics accuse SAA of not being strict and an embarrassment to the country as it is the national flag carrier, any negative development impacts on the whole image of the country.