As the government considers permanently shutting down SAA, the Department of Public Enterprises has rejected a request by the airline’s rescue practitioners for a further R10 billion to fund the ongoing business rescue process.
The current travel ban and five-week lockdown in response to the Covid-19 pandemic probably means SAA has run out of the R5.5 billion it got from a consortium of commercial banks and the Development Bank of South Africa (DBSA) to fund its rescue.
The rescue team did warn that the R5.5 billion would be spent by 31 March 2020 and the airline could not generate revenue from ticket sales with operations suspended due to the travel ban.
On 2 April, rescue practitioners Les Matuson and Siviwe Dongwana asked the Department of Public Enterprises for additional R10 billion in post-commencement finance, which would allow SAA to continue operating while a final business rescue plan was finalised. SAA’s cash crunch has seen the rescuers twice ask for an extension to the deadline for publication of the final rescue plan — which is now expected on 29 May.
SAA, which last turned a profit in 2011, has recorded about R26 billion in financial losses over the past six years and enjoyed successive government bailouts amounting to R20 billion over the same period.
Rejected funding request
The requested R10 billion would be funded through the extension of SAA’s foreign borrowing limits by the Department of Public Enterprises (SAA’s sole shareholder). In other words, the airline would borrow money from foreign capital markets because its financial position is so dire that it cannot source funds from domestic commercial banks.
Such an undertaking by the department would pave the way for Matuson and Dongwana to approach other potential funders to put more money into the airline for its restructuring, care and maintenance during the lockdown period.
The requested R10 billion from the department, along with money from potential funders, would cover the costs of restarting SAA operations when the lockdown is lifted.
However, in a letter dated 10 April and signed by Gordhan, the department turned down the request.
“The government will not support the extension of the foreign currency borrowing limit to permit foreign financing of the business rescue plan, nor for a care and maintenance budget, as you [the rescue practitioners] have proposed. There is, therefore, no funding available from foreign sources,” Gordhan’s letter reads.
Gordhan said the government was unable to provide additional funding to sustain the business rescue process beyond the R5.5 billion – fully guaranteed by the National Treasury – which had already been provided to SAA. He was also not willing to extend government guarantees as the “advent of the Covid-19 pandemic has further stretched national government resources”.
The authenticity of the Gordhan letter was confirmed by a senior department official.
The rescue practitioners were not immediately available to comment. However, in their latest update to SAA creditors about the business rescue process, Matuson and Dongwana said the “government will not support the extension of the foreign currency borrowing limit to permit foreign financing of the business rescue plan”. In other words, the duo confirmed the contents of Gordhan’s letter but didn’t specify how much money they required.
Matuson and Dongwana added: “We are currently assessing the impact of this development on the business rescue process and will communicate any decisions to be made in due course.”
Gordhan’s hard stance on SAA is similar to that taken by Minister of Finance Tito Mboweni. Briefing journalists on Tuesday 14 April about government interventions to limit the economic fallout of Covid-19, Mboweni said in notes, released to the media, that economic reforms would involve “consolidation of public entities and closure of SAA and SA Express”. When asked to elaborate on the closures, Mboweni said he was not aware that this phrase was included in his notes.
Without the additional requested funds, the rescue process will have to be funded with available resources.
When travel bans were imposed, the rescue practitioners warned that the measures might “threaten the very likelihood of the company being rescued”. Without additional funding from the government, SAA’s financial position is likely to deteriorate and push it closer to liquidation, signalling the death of the airline. BM
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