SAA Bailout Fund: This Is How Citizens Will Pay For The “Recapitalisation”


The continuous moves by the state government to issue bailout funds for the financially ailing state- own Airways, SAA, has been largely questioned with a many wondering if the government is aware of its effect on the economy.

BuzzSouthAfrica reported earlier that following financial crisis rocking the SAA, leading to a further loss of R734 million state government has yet again transferred funds to SAA.

Report from SA government gazette says that it decided to transfer funds from the National Revenue Fund to South African Airways to allow the airline to pay back its debt to Standard Chartered Bank thereby avoiding a default.

This followed the news that Standard Chartered Bank declined to “roll over” the R2.2 billion debt facility it had extended the airline.

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The Government Gazette also noted that the payment was done in terms of section 16 of the Public Finance Management Act which 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.

It also stated that plan to improve the financial positions of the airline through recapitalisation has been on government’s agenda for a while as outlined in the February 2017 Budget.

SAA has since its March 2017 financial year end, incurred a loss of R4.8 billion, and is subsequently running at a loss of about R370 million per month (equivalent to R4.44 billion per annum).

Notwithstanding how far the government goes to defend its decision about helping the SAA which has been largely criticised as being smeared by corruption coupled with mass looting, South Africans still do not believe the approach won’t be helpful to the airline.

Analysts like Warren Thompson believes that the recent bail-out fund issued to the SAA spells disaster not just for the airline, but also for South Africans who would continue to bear the consequences.

It appears that the payment comes at the expense of the national carrier’s suppliers who had reported not being paid on the mandatory 30-day terms for services rendered in May.

Explaining the cost of recapitalising the airline, the Mineweb’s editor who has also performed investment research for a variety of institutional investors said SAA currently has until the end of the 2021 financial year end to break even. Hence, “any recapitalisation would need to remove any adverse cash flow event or further contingent liability from the fiscus until the airline can stand on its own two feet”

This, according to him, would require the recapitalisation to be big enough to sustain operating losses, reinvestment in airlines and equipment, as well as honour any call by creditors for the repayment of the loans, for the better part of the next four years.

” Is it not insane that while black students are forced to go to war on the streets of our country in part to access funding for higher education, the ANC remains committed to bailing out a national carrier, which has zero utility for the poor?”

The SA government insists it would do everything in its power to ensure that the airline’s turnaround strategy is implemented.

“The airline 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.

Meanwhile, South Africans believe that the only way to ensure the sustainability of SAA is to file for business rescue and to stabilise the airline before taking it to the market to find private equity investors.

The DA, for instance, has called on the finance minister Malusi Gigaba to take a quick and robust action to stop the massive monthly losses that are running at R 370,0 million per month.

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The DA also maintained that the only sure way that the minister can take robust action is to file for SAA to be placed under business rescue in terms of Chapter 6 of the Company’s Act.

I will write to the Minister to request that the conditions for this recent bailout are made public to improve accountability, DA leader Mmusi stated.