The South African government has agreed to provide another cash bailout for debt-ridden South African Airways (SAA), funding the carrier’s revival as a new national airline.
In his medium-term budget policy statement delivered to the country’s parliament Oct. 28, South African finance minister Tito Mboweni announced he will allocate ZAR10.5 billion ($643 million) to implement SAA’s business rescue plan.
The airline has been in the country’s business rescue process (BRP), roughly similar to Chapter 11 bankruptcy-protection proceedings, since December 2019. Under the BRP, external administrators are brought in to try to salvage a company in financial difficulty.
The South African government faces a deteriorating financial position and Mboweni said the money for SAA would have to be found through reductions in budgets from other departments and public entities. The latest allocation is in addition to ZAR16.4 billion allocated in the February budget for settling SAA’s guaranteed debt and interest.
There has been considerable argument within the South African government as to whether more public funding should be expended on SAA, which has not made a profit for much of the last decade and has only survived through a succession of cash infusions from the government.
Mboweni is known to have been reluctant to plow in yet more money. The decision to do so is a victory for the Department for Public Enterprises (DPE), SAA’s shareholder, whose minister, Pravin Gordhan, has urged that the flag carrier be saved.
The two business-rescue administrators have been warning for some time that the funding previously allocated to SAA was insufficient to allow implementation of the rescue program.
In a statement Oct. 29, the DPE said the new funding was needed to finalize the business-rescue plan and restructure the airline. Without this, it would cost ZAR18.5 billion to liquidate the flag carrier.
The restructuring process will include:
• Appointment of an interim board.
• Appointment of an interim CEO and interim chief financial officer.
• Implementation of a “social plan” to provide training for laid-off staff.
• Selection of a strategic equity partner to strengthen the launch of the new SAA. The most likely potential partner is Ethiopian Airlines, which is unusual in that it is both state-owned and profitable.
• Settling the airline’s legacy debt.
The new funding is designed to allow preparations to begin for what the DPE described as “a new customer-centric airline designed to be lean, technology-capable, digitally modernized and agile to service all market segments.”
The aim is for the new SAA to be self-supporting, reducing the burden on taxpayers’ funds.
Related Content
