SA bails out insolvent state airline with R10.5bn

To implement its rescue plan, taking money from other government departments.
Image: Waldo Swiegers/Bloomberg

South African Finance Minister Tito Mboweni allocated R10.5 billion ($641 million) for the grounded state-owned airline to implement its rescue plan, taking money from other government departments.

Mboweni made the announcement in Wednesday’s medium-term budget policy statement, ending a long personal resistance to funding further bailouts. The support adds to the R16.4 billion the Treasury set aside over three years in February for South African Airways to repay its guaranteed debt and cover debt-service costs.

The fate of the national carrier has become an emotive topic in South Africa as the country struggles to recover from the Covid-19 pandemic and revive an economy already in recession before the virus hit. Public Enterprises Minister Pravin Gordhan made saving the airline a priority, but Mboweni had always said extra cash would have to come from private investors. The money will be redirected from several national departments, with the biggest cuts to the allocations for police and tertiary education.

South Africa’s cabinet made the decision to fund the business-rescue plan and has not attached conditions, Treasury officials said in a lockup session before the budget presentation.

SAA was placed in administration in December, hasn’t made a profit in almost a decade and has long relyed on state support. Keeping it afloat is seen by opposition parties and some analysts as an expensive distraction for the government at a time when it needs to rescue the more crucial state power utility and reinvigorate economic growth.

State-owned companies continue to present significant risks in the form of contingent liabilities and direct requests for state support, the Treasury said in the budget statement.

Other companies highlighted as risks include:

  • Airports Company of South Africa, which doesn’t have sufficient funds for its operational requirements.
  • Eskom, which has used up R320 billion of its R350 billion in government debt guarantees. Financial support for the utility is reduced by R4.2 billion over the medium term.
  • The Road Accident Fund is the government’s largest contingent liability and its accumulated deficit is seen growing to R593 billion by 2022-23.
  • The Land Bank started paying overdue interest from August, after first defaulting on debt in April. It was allocated R3 billion in June and has approached the government for additional financial support.
  • The South African National Roads Agency Ltd.’s revenue shortfall will cost the fiscus an additional R300 million in 2020-21.
© 2020 Bloomberg

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When children drown in pit toilets or in rivers as washed away bridges were never fixed, how does one defend this utter madness? It defies belief

And half the population needs welfare payments to stay alive.

At least the ANC and their families can fly around for free.

Who in their right mind even lends money to these people?? Because they should not!!!

The Taxpayers do !!! Without any choice or option in most cases !

The SAA is right at the bottom of the house of cards that is government debt. An SAA bankruptcy will trigger cross-defaults at all SOEs and all debt will become payable immediately. This will bankrupt the state and blow a hole in the banking system. SAA is useless as an airline but very important as a debtor. They have to keep SAA on life support, even if it never flyes again. They should amalgamate SAA with the taxi services in the townships. The taxi industry can be a private partner to “save” SAA.

The state cannot afford to repay the debt, so they have to keep on treading water to keep their nose above the water.

Well put Sensei : Therein lies the reality !

Many have no real assets in SA anymore and I would guess in anticipation of this very sort of scenario.

A default is also invertible. The Rand will tank and for those that shifted their money to more reliable destinations, Well…….

Sensei, may i suggest that you also get onto twitter, (if you don’t already have an account) You input and perspective will reach a wider audience, what you have to offer needs to get out there. –

Imho, I appreciate your kind comment and advice. I do not have a Twitter account yet.

This is a worse horror movie from Hollywood, except it’s not just an emotional train wreck on screen to entertain … real life stuff will real life consequence.

cANCer and EFFluent

There is a typo in the headline.

It should read: Insolvent SA bails out insolvent airline with 10.5 biljon.

Robbing Peter to pay Paul as the old saying goes… and this at time when most airlines are struggling, including ones in a far healthier state than SAA. The sheer extent of government’s folly defies logic and beggars belief.

‘far healthier state’ in this case means ‘barely alive still’, since SAA is dead. Actually already decomposed.

End of comments.

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