CAPE TOWN – South African Finance minister Tito Mboweni, and public enterprises minister Pravin Gordhan have committed the government to making available funding to South African Airways (SAA) for its immediate and longer-term needs as it implements a business rescue plan.
“A letter of support that commits the government to ‘mobilise funding for the short-, medium- and long-term requirements to create a viable and sustainable national airline’ was signed by the ministers of finance and public enterprises on 15 July,” the department of public enterprises (DPE) said on Thursday.
The commitment was given in a letter the ministers sent to the airline’s business rescue team. It follows the adoption last week by the company’s creditors of the plan. They voted in favour of it by an 86% margin.
The department confirmed that the rescue plan calls for an amount of R10.1 billion (about US$604 million) to “fund the rescue plan, clean up and stabilise the balance sheet of SAA, restructure the rest of the group entities that are not in business rescue, provide working capital for the rest of the group’s entities and to create a stable and viable platform for a new restructured national airline”.
It said varying tranches of money will be required as different aspects of the restructuring takes place.
The plan envisions the retrenchment of 2 700 employees at a cost of R2.2 billion (about US$131.6 million).
The state is also committed to honouring R16.4 billion (about US$981 million) in guaranteed debt to the loss-making carrier’s creditors. Gordhan has been an enthusiastic proponent of rescuing rather than shuttering SAA, while Mboweni has repeatedly said he would prefer to close it down.
However, Cabinet gave its backing to efforts to save the airline.
“The funding commitment gives effect to Cabinet’s endorsement of a business rescue plan for SAA and Cabinet’s position that ‘it supports the proposal for a new airline and the concerted effort to mobilise funding from various sources, including from potential equity partners for the uptake of the new airline’”, the department said.
The opposition Democratic Alliance (DA) strongly objects to the state extending more funding to SAA. The party said on Thursday that it had sent legal notice to Mboweni that it would take him to court if he used his emergency powers in terms of the Public Finance Management Act to give the airline a cash injection.
“It remains to be seen where they will find the money,” DA MP Geordin Hill-Lewis said.
“It would be totally unacceptable to inject yet another bailout into SAA using public money, or to offer government guarantees for new loans.”
Hill-Lewis said the letter of commitment indicated that Mboweni had backtracked on his previous refusal to give more money to SAA.
“Mboweni has often spoken out against providing any more support to bankrupt state-owned entities like SAA. He has made this, correctly, an issue of principle.
“If he is forced by the ANC and Cabinet to disburse public funds to SAA again, then he will have to carefully reconsider his position in the government.”
Gordhan has in recent weeks said that government received unsolicited expressions of interest from potential strategic equity partners who may play a role in rebuilding the company. Public enterprises on Thursday acknowledged that the airline industry globally was in turmoil as a result of the Covid-19 pandemic.
But it maintained that there are possibilities for airline partnerships to improve the scale and scope of the aviation industry and said if successful this would contribute value to the local economy.
“While maintaining a certain level of presence in the ownership of the new carrier, the DPE welcomes the attraction of a mix of local and international investor groups to provide the new airline with technical, financial, and operational expertise to ensure significant South African ownership whilst diversifying the investor base.”
Unions representing staff at the airline, including the National Union of Metalworkers of South Africa (NUMSA), initially opposed the planned retrenchments, but eventually gave their accord shortly before the creditors’ vote.
The South African Airways Pilots Association (SAAPA) however remained critical as the business plan proposes keeping less than a hundred out of the 617 pilots on SAA’s payroll. SAAPA demanded assurances before the vote that more of its members would be retained.
On Thursday, the union welcomed the commitment of further government funding for the restructuring process.
It added: “It is, and has always been, SAAPA’s priority to save jobs, to reduce reliance on the fiscus and ultimately, to save the airline.”
It said the investment of public funds in the current economic climate was not a commitment it viewed lightly and it was crucial that a capable board and management team was appointed to turn around the airline.Phillip Saunders was this week appointed as interim CEO of the airline in a move criticised by NUMSA, which said he lacked the relevant experience. – Nampa/ANA