South Africa's government is digging deep to create a rescue fund for its stricken flag carrier.
South Africa is in the final stage of negotiations with a potential investor for its grounded flag carrier, a move that would give the airline a boost just as it emerges from bankruptcy protection.
The deal will bring capital and “much-needed technical and commercial expertise” to South African Airways, the Department of Public Enterprises said in a statement Friday. The agreement should be signed in the next few weeks, it said.
The comments indicate a significant stride forward in a search that has dragged on for several months and taken place during the worst crisis in aviation history. SAA has been grounded since South African borders were temporarily closed in March last year to contain the coronavirus, and was awarded the latest in a series of state bailouts in October.
The government didn’t disclose the identity of the potential investor, and few names have emerged since Public Enterprises Minister Pravin Gordhan started saying private entities may be the sought. Ethiopian Airlines Group, Africa’s biggest airline, has publicly expressed interest, but has stressed in the past it would be an operational partner rather than financial backer.
One barrier to a major deal is that South Africa is cut off from large swathes of the world due to travel bans to contain a coronavirus variant identified in the country last year. Global air travel more broadly remains at a fraction of pre-pandemic levels, as resurgent case numbers and the differing pace of vaccine rollouts keep governments wary.
Struggling subsidiaries
While talks are ongoing, SAA’s interim board will develop a business plan to sustain the carrier’s operations, the DPE said. A priority will be to ensure the sustainability of its units including low-cost carrier Mango and maintenance arm SAA Technical, which are both showing signs of financial strain.
“These subsidiaries will need to be restructured and, in some instances, the case for continued existence must be assessed,” the department said.
Mango flights were briefly suspended earlier this week over the non-payment of fees to the airports operator, while SAA Technical announced plans to cut jobs that a union representative said would impact about 60% of employees.
Neither it nor Mango were included in the 10.5 billion rand (A$940m, US$725m) bailout granted to SAA last year.
SAA is now “solvent and liquid,” business-rescue practitioners led by Siviwe Dongwana said while handing over the airline to the board earlier Friday. The carrier has cut almost 80% of its workforce and reduced liabilities to 2.6 billion rand from 38 billion rand after deals with creditors and lessors.
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South Africa’s government is in talks with two state agencies to try and secure the 10.5 billion rand (A$890 million) needed to restart its insolvent national airline, people familiar with the situation said.
Money is being sought from the Development Bank of Southern Africa and the Public Investment Corp., which oversees more than 2.1 trillion rand of mainly state pension funds, the people said, asking not to be identified because an agreement has yet to be reached. The two firms didn’t immediately respond to requests for comment.
The administrators of South African Airways said the government had again promised to find the funding that will be used to pay severance packages, among other things.
“The timelines are critical for the decision on whether SAA is liquidated, wound up as a going concern or is able to continue to trade,” Louise Brugman, the administrators’ spokeswoman, said by phone from Johannesburg on Friday.
SAA has been in administration since December. The airline, which hasn’t made a profit since 2011, has long been a drain on state finances, relying on bailouts and other assistance since last making a profit almost a decade ago. Keeping it afloat is seen by opposition parties and some analysts as a distraction for the government at a time when it needs to rescue the more crucial state power utility and reinvigorate growth in an economy set for its biggest annual contraction in nine decades.
Money is being sought from the Development Bank of Southern Africa and the Public Investment Corp., which oversees more than 2.1 trillion rand of mainly state pension funds, the people said, asking not to be identified because an agreement has yet to be reached. The two firms didn’t immediately respond to requests for comment.
The administrators of South African Airways said the government had again promised to find the funding that will be used to pay severance packages, among other things.
“The timelines are critical for the decision on whether SAA is liquidated, wound up as a going concern or is able to continue to trade,” Louise Brugman, the administrators’ spokeswoman, said by phone from Johannesburg on Friday.
SAA has been in administration since December. The airline, which hasn’t made a profit since 2011, has long been a drain on state finances, relying on bailouts and other assistance since last making a profit almost a decade ago. Keeping it afloat is seen by opposition parties and some analysts as a distraction for the government at a time when it needs to rescue the more crucial state power utility and reinvigorate growth in an economy set for its biggest annual contraction in nine decades.
Mobilising money
Finance Minister Tito Mboweni has previously indicated the government doesn’t have the money available to rescue SAA and said he would help “mobilize” funds from other sources. The Treasury, which is due to release its medium-term budget framework next month, didn’t immediately respond to a request for comment. “The 2020 budget said that the money for restructuring costs will be found through a reprioritization process,” Public Enterprises Minister Pravin Gordhan, who has been championing efforts to save SAA, said in a text message. “That will be sorted out next week.”
While the DBSA, which has previously funded SAA, may provide more money, the PIC is resisting efforts to tap it for cash, citing its already significant exposure to struggling state entities, one of the people said. Twenty private-sector funders, private-equity investors and partners have submitted unsolicited expressions of interest in a restructured SAA, and those are being assessed, the DPE said.
Ethiopian Airlines Group is in talks with SAA over providing assistance, people familiar with the situation have said previously. The Addis Ababa-based carrier is seeking control, possibly in the form of a management contract, and that may be a sticking point, the people said. Ethiopian Airlines said in an emailed response to a request for comment that it has “no recent update” on the matter.
This article is published under license from Bloomberg Media: the original article can be viewed here
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