Treasury announces SAA bailout to settle R2.3bn debt

The SAA will now be able to settle its R2.3-billion debt with Standard Chartered Bank. (Bloomberg)

The SAA will now be able to settle its R2.3-billion debt with Standard Chartered Bank. (Bloomberg)

Government officials have moved to transfer an undisclosed sum from the National Revenue Fund to SAA in an attempt to help the airline pay back loans of approximately R2.3-billion to Standard Chartered bank.

“This payment was done in terms of section 16 of the Public Finance Management Act,” read a media statement released by government communications on behalf of national treasury on Saturday.

“This section of legislation states that the minister can authorise the use of funds to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future Parliamentary appropriation of funds.”

The announcement goes on to explain a default by the airline would likely trigger a mass lender-recall, “leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt”.

Indeed, all of the airlines’ loans – which total an estimated R19.1-billion – are backed by government guarantee. Any call for repayment that cannot be met by the parastatal will be passed on to the public – a grim prospect, considering Fitch and S&P already pushed the South Africa’s investment rating down to junk status in early April.

The February 2017 Budget and the upcoming October 2017 Medium Term Budget Policy Statement are said to explore several strategies to improve the airline’s financial profile; however, the nature of the problems at SAA led officials to use section 16 of the PFMA as a “last resort.”

The statement concluded by asserting the government “will do everything in its power to ensure that the airline’s turnaround strategy is implemented. [SAA] remains a strategic asset and in its role as the flag carrier, it serves as an economic enabler with direct and indirect benefits across a wide range of economic activity”. 

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Peter Rothpletz

Peter Rothpletz

Peter Rothpletz is an undergraduate at Yale University, where he serves as a special correspondent for a handful of publications on campus and the M&G Read more from Peter Rothpletz

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