The government is set to cover the full cost of recapitalising embattled state-owned entity South African Airways (SAA), according to Public Enterprises Minister Pravin Gordhan.
The airline, which was placed in business rescue in December 2019, has been grounded for a year following global travel bans aimed at limiting the spread of the coronavirus.
Business rescue practitioners Siviwe Dongwana and Les Matuson notified the airline’s creditors and employees earlier this month that SAA has already received R2 billion in working capital to resume operations.
This is however unlikely to be sufficient to cover the cost of recapitalising the cash-strapped state owned carrier.
New airline won’t need ‘any further funding from the fiscus’
Gordhan told parliament’s Standing Committee on Public Accounts (Scopa) on Wednesday following the exit of the business rescue practitioners the new airline that is expected to emerge from SAA will not need any further funding from the fiscus.
Read: SAA rescue process to be finalised end of March, BRPs say (Mar 19)
SAA has not made a profit for over a decade and has relied on government bailouts to remain afloat.
As at May last year, the business rescue process had already cost the shareholder (the taxpayer) R207.5 million.
This included payments for legal and advisory services to various companies including Bowman Gilfillan and PricewaterhouseCoopers, as well as Dongwana and Matuson.
The rescue practitioners said they would provide the committee with an updated cost of the 15-month long rescue process in due course.
When the viability of the airline will be determined
Gordhan said the airline is in the process of acquiring an equity partner that will provide further capital for SAA.
He declined to name the airline’s potential partners, saying that doing so would potentially compromise the discussions.
“Once we [government] take responsibility for the restructuring costs, the partner has to come in with future capital and that will then – together with the appropriate planning and expertise that is brought in from South Africa or within SAA and from outside – [be when] the viability of the airline will be determined.”
The business rescue plan, which was approved by creditors in July last year, envisaged that the airline would resume operations when the country eased restrictions, with domestic travel commencing under levels two and three of the lockdown and international travel resuming under level one.
However the airline was only able to conduct some repatriation and cargo flights throughout 2020 due to financial constraints and continued travel bans.
Questions around profitability ‘premature’
Responding to questions from committee members regarding the profitability of SAA, Gordhan said it was still premature to determine this, adding that: “A lot has changed and Covid has impacted on the aviation industry both globally and in South Africa.”
SAA has received R7.8 billion of the R10.5 billion that was allocated for the implementation of the business plan in the 2020 medium-term budget policy statement (MTBPS). This amount covers payments to employees, payments to post-commencement creditors and unflown ticket liabilities.
Of this amount, R2.8 billion was used for the payment of retrenchment packages, voluntary severance packages and unpaid salaries, while R700 million was used to pay creditors.
Breakdown of MTBPS funding allocation
The payments to employees exclude most members of the SAA Pilots’ Association (Saapa), who have been locked out of the airline since December following a deadlock in negotiations regarding their three-decade long Regulatory Agreement.
Read: SAA tries to replace locked-out pilots with outsiders (Mar 12)
Dongwana told parliament’s watchdog that Saapa has agreed to change some conditions of employment and that the airline remains hopeful that a settlement acceptable to both parties will be reached.
Gordhan used the opportunity to accuse Saapa members of attempting to sabotage SAA from getting off the ground.
“Particularly because some of them run the [pilot] training section of SAA and keep postponing training that can easily be done daily quickly in order that pilots are up to date in terms of the regulatory requirements,” he said.
“What the pilots’ association is doing is highly detrimental to what we want to achieve as government, which is to get a successful airline off the ground.”
The remaining R2.7 billion of the amount allocated to implement the rescue plan is expected to be used to recapitalise the airline’s subsidiaries – SAA Technical, Mango Airlines and Air Chefs. These funds have not yet been disbursed.
Dongwana told the committee the Department of Public Enterprises had advised the rescue practitioners that the balance of funds would be made available for the subsidiaries once certain government processes had been resolved.