In a controversial move at the last minute to the liquidation of South African Airways (SA, Johannesburg OR Tambo), the country’s government says it will re-prioritize state funding to rescue the ailing airline.
The announcement came when the administrators of SAA convened an urgent meeting of creditors on September 18, 2020 warning that the company, which has been in business rescue since December 2019, is out of money. and that the state funding promised by September 16 had not materialized.
Administrators Siviwe Dongwana and Les Matuson confirmed that they had received a letter from the government prior to the meeting. However, they required further discussions with the shareholder and would report back to all concerned next week.
The government said the re-prioritization of the funds will be announced in the Adjustment Budget Act, which will soon be presented to parliament. “The national airline will not be liquidated,” said the Department of Public Enterprises (DPE), SAA’s shareholder representative, in a statement.
It calls on lenders to fund the restructuring process as well as voluntary severance payments and layoffs for SAA employees, and promises that the restructuring of SAA “should be brought closer to completion” in the next few weeks. At the same time, the DPE will continue to evaluate “20 unsolicited expressions of interest from private sector donors, private equity investors and partners,” the statement said.
The administrators refused to make the government’s letter public. Nonetheless, they confirmed: “We received another notice from the government this morning, approved by the Treasury Department, stating that the cabinet has committed to provide funding but the timetable has yet to be set. We need further discussions with the government to understand the timelines and the flow of funds into the company, ”they said.
The administrators said they had to look into whether there was still a case of winding up or liquidating the company. They stressed that they would only be able to exit the company from the company rescue if the company rescue plan, which primarily involved the inflow of funds into the company, was substantially implemented.
The administrators will need at least ZAR 5 billion rand ($ 300 million) in working capital to pay severance payments and post-launch creditors before they can release the airline from corporate bailout. SAA needs at least ZAR 10 billion (US $ 598 million) over the next three years to implement the corporate bailout plan. The South African Treasury Department has repeatedly turned down another airline bailout, but in July agreed with the DPE to “mobilize” funds for their rescue.
The political opposition, Democratic Alliance, has accused the DPE and administrators of misleading South Africans. DA chief Alf Lees said: “According to our information, Finance Minister Tito Mboweni and the National Treasury have not agreed to provide a state-funded bailout for SAA and that SAA will not be provided funding in the near future, and apparently certainly not until next week. minister [of Public Enterprises Pravin] Gordhan appears to be putting pressure on President Cyril Ramaphosa and the Cabinet to order Minister Mboweni to launch a taxpayer bailout for SAA – if not immediately, then in the mid-term fiscal adjustment budget (MTBPS) in October 2020 The National Treasury refuses to give in , and the BRPs falsely insinuated to creditors that the National Treasury letter made a “commitment” to provide funding immediately, “he said.
He urged administrators to publish the government’s letter and said prosecutors would oppose further SAA bailouts.