BuzzSouthAfrica reported last week that there was an agitation for the South African Airways (SAA) loan agreements be publicised.
The agitation follows a further R734 million loss the airways bagged after the over R4 billion loss it recorded in the 2016/17 financial year.
We also highlighted in the report that SAA has no plan in place to meet its 30th of June 2017 deadline with respect to its R9.0 billion worth of maturing loans.
Evidently, SAA was being dragged to its grave by its nasty financial mess. The government had to intervene, thus, it transferred funds from the National Revenue Fund to SAA.
For What? Why Would The Government Do That?
If you think the government’s action was preposterous, your sentiment is understandable. For one thing, it is not sensible to deal with mismanagement by just providing more funds. The funds will likely be mismanaged as well.
If it’s not a sound judgment, why did the government tread the path?
The answer isn’t farfetched. To the government, it’s good sense to hand SAA funds from the National Revenue Fund and enable the airline pay back its debt to Standard Chartered Bank thereby avoiding a default.
The government argued that a default by the airline would have triggered a call on the guarantee, leading to an outflow from the National Revenue Fund and possibly, resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.
It’s simply the recapitalisation of the South Africa Airways. According to the government, improving the financial positions of the airline through recapitalisation has been on its agenda.
“Several options are being explored and an update will be provided during the Medium Term Budget Policy Statement in October 2017. Given the nature of the problems at SAA, section 16 of the Public Finance Management Act (PFMA) had to be used as the last resort,” stated the government.
Are Such Acts Legal?
You can tell from the foregoing that the transfer was done in terms of section 16 of the Public Finance Management Act.
The quoted section of the legislation stipulated 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 government promised that the due process laid out in the legislation will be followed.
What Are The Reactions To The Government Intervention?
So far, it’s known that the Democratic Alliance (DA) party described the government intervention as “a blow to the credibility of SAA board and National Treasury.”
For the party, it’s not sound judgement for SAA to be bailed out from its R2,207 billion Standard Chartered Bank loan from the National Revenue Fund.
“It is deeply ironic that it has been necessary to announce a R2,3 billion bailout for the national airline in the middle of the ANC’s National Policy Conference 2017 which is heavily focused on economic policy, including stabilising zombie state-owned enterprises such as South African Airways.
“Standard Chartered Bank evidently has no faith in the leadership, management and strategy of South African Airways,” DA asserted.
The party also proclaimed that the emergency funding for SAA shows the serious crisis SAA has been mismanaged into.
“This taxpayer bailout makes no difference to the cash crisis at SAA. SAA is losing in the region of R370 million every month and is apparently scratching for cash to pay salaries,” DA added.
Will SAA Survive?
That depends. If you ask the DA, 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.
We can’t say the government is certain SAA will survive its plague of financial misfortune. But, the government has vowed to “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,” stated the government.