Controversy over South African gov’t bailout to save SAA

In a controversial last minute move to ward off the liquidation of South African Airways (SA, Johannesburg O.R. Tambo), the country’s government says it will reprioritise state funding to save the stricken airline. The announcement came as SAA’s administrators convened an urgent meeting of creditors on September 18, 2020, warning the company, in business rescue since December 2019, was running out of cash; and that government funding promised by September 16 had not materialised. Administrators Siviwe Dongwana and Les Matuson confirmed they had received a letter from the government ahead of the meeting, but they required further discussions with the shareholder and would report back to all affected parties next week. The government said the reprioritisation of funds would be announced in the Adjustments Appropriation Bill, which will be introduced in Parliament soon. “The national carrier will not be liquidated,” the Department of Public Enterprises, (DPE), SAA’s shareholder representative, said in a statement. It would request lenders to finance the restructuring process, as well as voluntary severance packages and retrenchments of SAA staff, promising the restructuring of SAA “should be brought closer to finalisation in the next few weeks”. At the same time, DPE would continue to assess “20 unsolicited expressions of interests from private sector funders, private equity investors and partners”, the statement read. The administrators declined to make the letter from the government public, but confirmed: “We have received a further communication from Government this morning, endorsed by Treasury, expressing that Cabinet is committed to providing the funding, but with the timelines still to be finalised. We need further discussions with Government to understand the timelines and flow of funds into the company,” they said. The administrators said they would need to assess if there was still a case for a wind-down or liquidation of the company. They stressed they could only exit the company from business rescue, once there was substantial implementation of the business rescue plan, which, importantly, included the flow of funding into the company. The administrators need at least ZAR5 billion rand (USD300 million) for working capital, to pay severance packages and post-commencement creditors, before they can discharge the airline from business rescue. SAA needs at least ZAR10 billion (USD598 million) over the next three years to implement the business rescue plan. South Africa’s Treasury has repeatedly refused another bailout of the airline, but, together with DPE, in July agreed to “mobilise” funds for its rescue.