New, but still old SAA waits in the wings at the cost of R4.6bn

By Ray Mahlaka 1 June 2020
An SAA plane is seen at Cape Town International Airport, 27 June 2019. (Photo: Daily Maverick)

To launch the new airline, government will shell out at least R4.6-billion, according to the SAA draft business rescue plan. This is over and above the R22-billion in government bailouts that SAA has received since 2009 – it last turned a profit in 2011. 

Ray Mahlaka

The business rescue practitioners of SAA have proposed the launch of a new state-owned airline, which will still depend on public finances – or SA taxpayers – to ascend it to the skies. 

A 95-page draft rescue plan by the rescue practitioners, which was released on Monday 1 June 2020, has proposed that the new airline will purchase the entire shareholding of the old SAA that is currently held by the government.  The new airline will still be majority-owned by the government. 

Arguably, the draft plan by the rescue practitioners, Siviwe Dongwana and Les Matuson, endorsed ambitions by Public Enterprises Minister, Pravin Gordhan, and the ANC for the state’s participation in the aviation industry.  Gordhan and the ANC wanted SAA or a new version of it to be retained as a national airline. 

A meeting with creditors is yet to be scheduled for the approval of the draft rescue plan.

To launch the new airline, the government wouldshell out at least R4.6-billion, according to the SAA draft business rescue plan. This is over and above the R22-billion in government bailouts (cash injections and government guarantees) that SAA has received since 2009 while it last turned a profit in 2011. 

It’s not clear if the National Treasury and the Department of Public Enterprises have agreed to fund the new airline. Treasury referred a request for comment to the Department of Public Enterprises.  In a statement, department said   the “government has not discussed the plan yet and no decisions have been taken on some of the proposals it contains.”

“The draft plan has been prepared by the Business Rescue Practitioners and is meant to be discussed by various stakeholders including creditors, employees, and government.”

Dongwana and Matuson said the government has agreed to put in about R4-billion in the new airline – R2-billion to fund its initial working capital post the Covid-19 lockdown period and R2-billion for retrenchment packages to nearly half (48.17%) of SAA’s 4,708-strong workforce. This is if the draft rescue plan is approved by creditors.

An additional R600-million is required before the new airline could be launched to pay concurrent creditors over the next three years, whose claims are not secured or backed by the government.

Dongwana and Les Matuson said the government has also agreed to allocate R16.4-billion to pay SAA lenders over the next three years, mainly commercial banks whose loans are secured because they are backed by government guarantees. 

That SAA’s financial position is dire and the airline cannot independently service its debt means that the government will have to step in and pay its outstanding loans to lenders. The R16.4-billion is not new money as it was already allocated in the February 2020 budget by Finance Minister Tito Mboweni for SAA to repay its historical guaranteed debt. 

Exposure by commercial banks to SAA

For the first time, the draft rescue plan outlines the money SAA owes to commercial banks, which include Nedbank (R2.7-billion), Absa (R2.4-billion), Standard Bank (R1.3-billion) Investec (R1.3-billion), FirstRand (R835.4-million), Ninety One (formerly Investec Asset Management – owed R253.1-million), Ashburton (R113.9-million), Momentum (R105.4-million) and Sanlam (R168.7-million). 

Nedbank, Investec, FirstRand, Absa and Standard Bank are further owed a combined R2-billion by SAA – money the commercial banks extended in December 2019 to fund the airline’s business rescue process. The Development Bank of Southern Africa (DBSA) also joined commercial banks by throwing a  R3.5-billion lifeline to the rescue process, bringing the total funding of SAA’s business rescue proceedings to R5.5-billion. The R5.5-billion plus accrued interest, which is also backed by government guarantees, should be paid by the government on 31 July 2020. 

The R16.4-billion that has been allocated by the government will be used over the next three years to pay commercial banks R12.7-billion and about R3.7-billion to the DBSA, including interest.

Airline routes 

Dongwana and Les Matuson said the government supports a business rescue “which results in a viable and sustainable national flag carrier that provides international, regional, and domestic services”.

The new airline is expected to operate frequent domestic flights (Johannesburg, Cape Town, Durban, and Port Elizabeth), regional flights (Blantyre, Entebbe, Gaborone, Libreville, Luanda, Ndola) and international flights (Munich). 

Before the Covid-19 pandemic, Dongwana and Les Matuson cut unprofitable domestic routes down to one, international routes to five and regional routes to 12. However, the duo said some of the cancelled flights might be reinstated because SAA aircraft lessors have agreed to reduce their leasing costs if the draft plan is approved by creditors. BM/DM 



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