A day before it had to repay its debt to US lender Citibank, government has bailed out struggling national carrier South African Airways (SAA) with R3-billion.
The cash injection will prevent the airline from defaulting on its loans.
“Government has approved the transfer of funds from the National Revenue Fund (NRF) to SAA to allow the airline to address the debt obligations to Citibank, thereby avoiding a default. Funds will also be used to assist SAA with its immediate working capital requirements,” said National Treasury in a media release.
“A default by the airline on the R3bn would have triggered a call on the guarantee exposure totaling R16.4bn, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.”
Treasury said the payment was done in terms of section 16 of the Public Finance Management Act. It stated that this section of the act states that the Minister of Finance 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”.
Treasury added that a plan to improve the financial situation of the cash-strapped airline will be provided during Finance Minister Malusi Gigaba’s mini budget speech in October.
The SA national carrier needed to repay its debt obligation of R1.8bn to US lender Citibank by Saturday.
The R3bn in funds provided by Treasury on Friday, meanwhile, means that the airline will also receive a cash boost of approximately R1.2bn for “immediate working capital requirements”.
The R1.8bn in debt is part of a total of R6.9bn of SAA debt that was set to mature at the end of September.
Treasury director general Dondo Mogajane previously told Fin24 that while negotiations with lenders might lessen this amount, giving the airline some breathing space, the Citibank debt could not be rolled over and needed to be repaid.
“We owe Citibank about R1.8bn. We had an understanding with them to roll debt to September,” he said.
In Friday’s statement, Treasury did not give an update on the status of negotiations other other lenders, or when the rest of SAA’s debt needed to be repaid.
In an effort to cut costs, SAA has started cutting back on some routes.
SAA recorded a loss of R1.5bn in the 2015/16 financial year, which rose to R4.7bn in 2016/17. It has already made a R1.3bn loss in the the current financial year to July.
It will need an estimated R13bn bailout over the next three years.
Just over two weeks ago Treasury drafted a special appropriation bill to recapitalise SAA with a R10bn bailout, which it hoped to table in a special parliamentary sitting.
But this option seems to have taken a backseat for now, as the finance ministry and Treasury focused their attention on finding a solution for Saturday’s payment deadline.
DA leader Mmusi Maimane, meanwhile, on Thursday called for Gigaba to sell off the airline, after first “stabilising and professionalising” it
“The only way to help this alcoholic (SAA), is to cut off its funds,” Maimane told journalists in Johannesburg. – News24