South African Airways faces $900 million bill for rescue, restart

South Africa's government is digging deep to create a rescue fund for its stricken flag carrier.

By Bloomberg News, September 21 2020
South African Airways faces $900 million bill for rescue, restart

South Africa’s government is in talks with two state agencies to try and secure the 10.5 billion rand (A$890 million) needed to restart its insolvent national airline, people familiar with the situation said.

Money is being sought from the Development Bank of Southern Africa and the Public Investment Corp., which oversees more than 2.1 trillion rand of mainly state pension funds, the people said, asking not to be identified because an agreement has yet to be reached. The two firms didn’t immediately respond to requests for comment.

The administrators of South African Airways said the government had again promised to find the funding that will be used to pay severance packages, among other things.

“The timelines are critical for the decision on whether SAA is liquidated, wound up as a going concern or is able to continue to trade,” Louise Brugman, the administrators’ spokeswoman, said by phone from Johannesburg on Friday.

SAA has been in administration since December. The airline, which hasn’t made a profit since 2011, has long been a drain on state finances, relying on bailouts and other assistance since last making a profit almost a decade ago.

Keeping it afloat is seen by opposition parties and some analysts as a distraction for the government at a time when it needs to rescue the more crucial state power utility and reinvigorate growth in an economy set for its biggest annual contraction in nine decades.

Mobilising money

Finance Minister Tito Mboweni has previously indicated the government doesn’t have the money available to rescue SAA and said he would help “mobilize” funds from other sources. The Treasury, which is due to release its medium-term budget framework next month, didn’t immediately respond to a request for comment.

“The 2020 budget said that the money for restructuring costs will be found through a reprioritization process,” Public Enterprises Minister Pravin Gordhan, who has been championing efforts to save SAA, said in a text message. “That will be sorted out next week.”

While the DBSA, which has previously funded SAA, may provide more money, the PIC is resisting efforts to tap it for cash, citing its already significant exposure to struggling state entities, one of the people said.

Twenty private-sector funders, private-equity investors and partners have submitted unsolicited expressions of interest in a restructured SAA, and those are being assessed, the DPE said.

Ethiopian Airlines Group is in talks with SAA over providing assistance, people familiar with the situation have said previously. The Addis Ababa-based carrier is seeking control, possibly in the form of a management contract, and that may be a sticking point, the people said.

Ethiopian Airlines said in an emailed response to a request for comment that it has “no recent update” on the matter.

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