Mini Budget 2020

SAA gets special treatment in Mboweni’s mini budget 

By Ray Mahlaka 28 October 2020
Caption
Illustrative image | Source: Waldo Swiegers / Bloomberg via Getty Images

SAA is the only state-owned entity to get ‘new’ money from the government in the Medium-Term Budget Policy Statement. Others, such as SA Express, Eskom and the Land Bank got zip. And Denel — on the brink of collapse — was also snubbed.

Ray Mahlaka

Finance Minister Tito Mboweni has caved in to pressure from his Cabinet colleagues to continue supporting state-owned enterprises (SOEs) – including those that are unproductive and guzzlers of taxpayer funds.

This is despite growing warnings from global development finance institutions such as the World Bank and International Monetary Fund for the government cut off support for SOEs at a time when public finances are deteriorating due to the Covid-19 pandemic. 

SAA is the only SOE that was allocated new money on Wednesday in the Medium-Term Budget Policy Statement (MTBPS), which outlines the government’s expenditure framework and fiscal policy over the next three years.

Mboweni awarded SAA R17 billion in financial support for its aviation operations, in the form of an equity injection (actual money transfer) and a government guarantee. A guarantee is an agreement that the government will pay an SOE’s outstanding debt to lenders if it defaults on loan payments. SOEs can use government guarantees to raise funds from lenders such as commercial banks and development finance institutions.

The R17 billion allocated to SAA will support its business rescue process, which has been ongoing for nearly 11 months. Without the support from the government, SAA would be in danger of liquidation, which entails the permanent closure of the airline’s operations and a fire sale of its assets to pay the outstanding debt that is guaranteed by the government.

In September, Mboweni, who is against providing SAA with more government bailouts and recently said that the airline should permanently close, faced off with his Cabinet colleagues over the airline’s fate.

At a Cabinet meeting, Public Enterprises Minister Pravin Gordhan, who oversees the operations of SOEs, received the backing of President Cyril Ramaphosa for public finances to rescue SAA again – putting pressure on Mboweni to free up funds for the airline.

New money for SAA

The R17 billion for SAA in the MTBPS is not entirely new money. Of this total, R10.5 billion is new, while the remaining R6.5 billion was allocated in the February national Budget for SAA to pay historical debt and interest to lenders. The debt and interest obligation is guaranteed by the government.

The newly allocated R10.5 billion will fund the implementation of SAA’s business rescue plan, which proposes paying unsecured creditors nearly R2 billion over three years, retrenchment packages worth R2.2 billion to 2,000 workers, and funding the restart of the airline’s flights in January 2021.

Once the R10.5-billion is transferred from the fiscus to the SAA business rescue practitioners, Siviwe Dongwana and Les Matuson, the duo can proceed to restructure the airline and hand it over to its management and board.

Mboweni might face a storm from labour and business circles for supporting SAA by freeing up money through departmental budget cuts.

In the MTBPS, Mboweni announced cuts in government expenditure over the next three years. Expenditure will decrease by R62.9 billion in 2021/22, R92.9 billion in 2022/23, and R150.9 billion in 2023/24.

The cuts will be made in government departments (mainly defence and security), schemes funded by government for employers in SA to upskill workers and salary increases over the next three years for 1.3 million public servants. 

Defenders of Mboweni will argue that he is providing money to SAA in a fiscally neutral manner – meaning he is not borrowing new money and, in turn, increasing government debt levels that are expected to reach R4 trillion, or 81.8% of GDP, in 2020/21.

 

Other SOEs snubbed

Other SOEs, such as SA Express, Eskom and the Land Bank, were not allocated new money for their operations. Funds shown as allocated in the MTBPS had already been pencilled in in the main Budget in February or the emergency supplementary budget in June.

Other SOEs that are on the brink of collapse, such as Denel — the main supplier to the defence force and recognised as strategically important to the country by the government — were snubbed by Mboweni. 

SA Express, the second state-owned airline under provisional liquidation after a failed business rescue, has been allocated R143 million in the MTBPS — to repay debt to lenders that is guaranteed by the government. No new funds were allocated to revive its flying operations.

The Land Bank, a state-owned lender that Mboweni recently said was “too big to fail” because it provides 28% of SA’s agricultural debt, was given R74 million to pay outstanding debt to lenders.

Read more here: Begging bowl: Land Bank the latest state-owned entity to seek R10bn bailout from the state 

An amount of R23 billion was reflected as allocated to Eskom, but is part of the R69 billion allocated to the power utility in February 2019 – funds that it can draw down over a sustained period. DM/BM

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  • So the airline that has not made a profit in 20 years, which was gutted by Dudu and which is now going through a relaunch (in the middle of a no-travel pandemic, where even the most well-run airlines are losing money) gets R17bn, but the SABC – which is a crucial player in getting news and information out to the majority, is so poor that it wants to charge licence fees for every PC, laptop, tablet and mobile smart phone in the country?

    Maybe, instead of trying to achiever the impossible (as described in the first sentence above), government should do the merciful thing and put SAA out of its misery and use the R17bn for something more worthwhile like ensuring a strong and competent public broadcaster?…

  • Can’t see any logical reason in the current state of the international airline industry for this bail out. SAA hasn’t made a profit in years so the money will never be repaid, & airlines in a far stronger financial condition than SAA are struggling & will probably continue to do so. Am I being cynical when I think maybe there are too many SAA supply contracts giving back-handers so the gravy train is threatened? Surely the State’s power grid is of more importance, the stabilisation of which will benefit the entire country?

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