South African Government to Help Fund National Airline’s Rescue

JOHANNESBURG (Capital Markets in Africa) — South Africa’s government will provide initial funding to cover certain restructuring costs for the country’s insolvent airline, said Minister of Public Enterprises Pravin Gordhan.

South African Airways needs about 10.5 billion rand ($650 million) to restart. Funding is needed for workers’ severance packages, to pay creditors and cover operational costs, the minister said in response to questions from Bloomberg News.

“The money issue from the government side will be resolved in the coming week in meetings due, but the commitment has been settled,” Gordhan said by email.

While the government has been considering different options and approached institutions and lenders to secure funding, it might have to put up some money from state coffers to save South African Airways and ensure a future equity partner deal.

“The equity partner process will still take a bit of time to process. So that is later. Right now money is needed for restructuring costs,” the minister said.

Distraction
SAA was placed in administration in December, hasn’t made a profit since 2011, and is relying on state handouts. 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.

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. However, a “reprioritization” of funds in the 2020 budget could be implemented to cover the restructuring costs, according to Gordhan.

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 Department of Public Enterprises said.

Ethiopian Airlines Group is in talks with SAA over providing assistance, people familiar with the situation have said. 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.

Source: Bloomberg Business News