SAA resurrected with state funds?
The government of South Africa’s President Cyril Ramaphosa is considering resurrecting the country’s flag carrier with state funds. The proposal would reverse previous pledges to withhold more bailouts from South African Airways that has been pushed close to liquidation by the coronavirus pandemic. The government would inject R4.6bn ($264m) to create a new state airline out of SAA, which was placed into a form of bankruptcy protection last year. The draft proposal by administrators was published by South Africa’s biggest opposition party on Monday. The ministry responsible for overseeing state-owned companies said the government “has not discussed the plan yet and no decisions have been taken on some of the proposals it contains”.
SAA, once Africa’s biggest airline, has grounded commercial flights since South Africa began a lockdown in late March. This has added to a decade of losses that has brought it to near-collapse and tested the limits of Mr Ramaphosa’s willingness to devote stretched public finances to rescue beleaguered state companies.
SAA administrators said in the draft plan that state funds were needed on top of about R16bn that the government has already approved to pay off creditors of the airline.
The resurrected SAA would sharply cut jobs and aircraft but would be projected to post losses of more than R19bn in the next three years. “If this draft business rescue plan is approved in its current form, SAA will continue to be a fiscal black hole for years to come,” the main opposition Democratic Alliance said. SAA has already received R20bn of bailouts in the past three years to cover the fallout from years of mismanagement. Pravin Gordhan, the minister overseeing state-owned companies, said last year that the state was “not in a position to make money available to the airline” shortly before it entered into administration. In April he rejected a R10bn funding request. But Mr Gordhan has since put pressure on the administrators to come up with a rescue plan. He has embraced the idea of forging a new state airline from the ashes of SAA, despite the turmoil that Covid-19 is causing in the international aviation industry. In South Africa, limited domestic flights are scheduled to resume under a loosening of the lockdown this month, but international commercial travel remains closed. Mr Gordhan has said that he is keen to attract minority private investors to a new airline. However, analysts and executives in the industry say the history of political interference at SAA puts off suitors. Before the pandemic, SAA’s administrators had held talks with three potential investors in the airline or its units either as equity or alliance partners, according to the draft. “All these engagements took place pre-Covid-19, and would be revived once the aviation industry is back on its feet,” it said. SAA’s administrators declined to comment. “To assume and comment on this draft as if it is the final version would be very irresponsible,” they said.
