South Africa’s government has provisionally agreed to allocate at least 21 billion rand ($1.8 billion) to the country’s embattled national airline to help repay debt and resume operations after the lifting of Covid-19 travel bans.
The proposed package includes about 17 billion rand that will go toward repaying South African Airways creditors, according to a draft copy of a rescue plan prepared by administrators and seen by Bloomberg. A further 4 billion rand will go toward retrenchments and working capital.
The draft plan “is for discussion purposes only and we await comment from the affected persons,” a spokeswoman for the administrators said, adding that the team has until June 8 to finalize a rescue proposal. South Africa’s Public Enterprises Ministry, which is responsible for SAA, said it hasn’t yet discussed the plan and no decisions have been taken.
While the funding agreement has yet to be finalized, a deal of this nature would represent a truce between the government and SAA’s business-rescue team over the airline’s future.
The administrators, appointed in December, had an earlier request for state funding rejected in April, and subsequently proposed firing the entire workforce to stave off liquidation.
Plans for new airline abandoned?
Public Enterprises Minister Pravin Gordhan strongly objected to that plan and instead announced his ambitions for the creation of a new "financially viable and competitive" airline, potentially with both public and private owners.
"It will not be the old SAA but the beginning of a new journey to a new restructured airline which will be a proud flagship for South Africa," the country's Department of Public Enterprises said in a statement at the time.
"The old SAA is dead, there is no doubt about that," Gordhan told Bloomberg. "But what will take its place may be some or all of the old SAA and maybe some other airlines too."
However, the proposal appears to have kicked off a fresh round of talks which has resulted in another bailout for South African Airways, which is technically insolvent and was on the brink of being placed in liquidation by administrators.
The coronavirus looked to be the final nail in the coffin for SAA, which last made a profit in 2011 and has since racked up $2 billion in losses over the last six years and has relied on bailouts and state-guaranteed debt agreements to keep flying.
SAA’s commercial passenger planes have been grounded since late March, when the government closed borders for non-urgent travel to contain the coronavirus. Some domestic flights are being allowed to operate as of Monday for business purposes, though SAA had previously reduced its local services to a single Johannesburg-Cape Town route.
Additional reporting by David Flynn