The Airports Company South Africa (ASCA) is a fairly rare South African SOE: It has been making money. But the pandemic’s disruptions to air travel have thrown a massive spanner in the works and the company said it may have a funding requirement of R11-billion over the next five to six years.

That will presumably have to come from threadbare state coffers at the National Treasury.  Or it may have to raise the money through the debt markets. Perhaps an equity injection from the private sector could be in the offing? The first two scenarios seem more likely at this point. 

Things were taking off before the pandemic grounded the airline industry. 

ACSA said in a Sens announcement that it made a profit of R1.2-billion in 2020, up from R223-million the previous year. This was largely attributable to accounting adjustments including an R721-million fair-value adjustment to the company’s investment properties, so perhaps it is not the best gauge of the company’s performance. 

Earnings before interest, tax, depreciation and amortisation (EBITDA), a metric favoured by many analysts who crunch valuations on companies, declined to R2.6-billion from almost R2.9-billion. Still, the company was making money and as the lockdown loomed in March it took steps to shore up its finances.

“The impact of Covid-19 and travel restrictions resulted in the company foregoing performance bonuses, salary adjustments and reducing other operating expenses towards the end of the financial year in order to mitigate the liquidity challenges,” CEO Mpumi Mpofu said in the Sens statement. 

Overall, there was a 1% decline to 20,924,465 in the number of departing passengers. This comes as no surprise because travel restrictions were enforced as the pandemic set in at the end of the financial year, which led to a “drastic contraction in departing passengers and aircraft landings”. 

Because of Covid-19, things have gone pear-shaped. 

“The onset of the Covid-19 pandemic caused our earnings to take a dramatic downturn and this trend is set to continue in the next financial year,” said Mpofu.

“We anticipate that the impact on traffic volumes and airline sustainability will be long term. Significant responses that have been introduced to mitigate the impact of the anticipated traffic volume decline include considerable reductions in operational and capital expenditure.”

The upshot is that an SOE that had been making money now has a “funding requirement”. 

“The result of this scenario leads to a funding requirement over a five- to six-year period of up to R11-billion. Of this amount, up to R3.5-billion will be required in the next three years given current assumptions,” the company said. 

ACSA is too big to fail. Besides the airports it runs, there is not much competition. Certainly not enough to accommodate even a leaner, meaner airline industry. 

ACSA went on to say that the outlook for the airline industry as a whole is very unclear, which in turn clouds the outlook for its earnings.

“Capacity rationalisation is inevitable, and we are prepared to look for new ways of diversifying our revenue,” Mpofu said. 

ACSA is a monopoly, which can do great things for an income statement. But even that has its limits and of course can also lead to flabby governance as the case of Eskom has so painfully demonstrated. What is sad, though is that ACSA seemed to be making a go of it until the pandemic hit. BM/DM