SAA gets urgent R2.2bn bailout as it bleeds millions every month
Cape Town – South African Airways (SAA) has received yet another lifeline from Treasury, this time about R2.207bn for the embattled state-owned carrier to repay its loan to Standard Chartered Bank.
SAA received a R5bn going concern guarantee in September 2016, after a new board was appointed.
The bailout comes after National Treasury director general Dondo Mogajane told Parliament this week that he was confident that the loan would be repaid by the June 30 deadline.
“Government has decided to transfer funds from the National Revenue Fund (NRF) to South African Airways to allow the airline to pay back its debt to Standard Chartered Bank thereby avoiding a default,” Treasury said in a statement on Saturday.
“A default by the airline would have triggered a call on the guarantee, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA's guaranteed debt,” it said.
SAA previously acknowledged in a statement that R9bn will be due and payable to “one lender”. Although SAA did not want to name the “lender”, it is alleged to be Standard Chartered Bank which has declined to renew SAA's loan facilities.
Blow to credibility of SAA and Treasury - DA
Democratic Alliance SAA spokesperson Alf Lees said this was a “blow to the credibility of both the SAA board and to National Treasury”.
“Only three days ago when I asked National Treasury whether they were ready to meet the guarantee obligations, both SAA and National Treasury reassured the parliamentary standing committee on finance that the plans were in place to meet the R 9bn SAA loan payments by 30 June 2017. This was clearly not the case,” he said in a statement on Saturday.
“Standard Chartered Bank evidently has no faith in the leadership, management and strategy of South African Airways,” he said.
“This emergency funding for SAA indicates the serious crisis that SAA has been mismanaged into,” he said. “This taxpayer bailout makes no difference to the cash crisis at SAA.
“SAA is losing in the region of R370m every month and is apparently scratching for cash to pay salaries,” he said.
Finance minister has 14 days to explain bailout
Treasury said the payment was done in terms of section 16 of the Public Finance Management Act (PFMA).
“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,” it said. “The due process laid out in the legislation will be followed.”
The PFMA makes provision for the use of funds in an emergency situation as follows:
“[T]he use of funds from the National Revenue Fund 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 PFMA requires that such a payment must be reported to parliament within 14 days and must be included in an adjustments budget within 120 days of the minister authorising the expenditure.
“We look forward to the minister’s (Finance Minister Malusi Gigaba) report to Parliament within 14 days,” Lees said. “This report must give details of why this expenditure was authorised as being an emergency situation.”
A last resort
Treasury said that improving the financial positions of the airline through recapitalisation has been on government’s agenda for a while as outlined in the February 2017 Budget.
“Several options are being explored and an update will be provided during the Medium Term Budget Policy Statement in October 2017,” it said. “Given the nature of the problems at SAA, section 16 of the PFMA had to be used as the last resort.
“Government will 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.”
The bailout will add more pressure on embattled SAA board chair Dudu Myeni, after the Companies Tribunal this week dismissed her application to have a compliance notice issued by the Companies and Intellectual Properties Commission set aside.
SAA in talks with PIC over loan
This week, SAA confirmed it is in discussions with the Public Investment Corporation (PIC) for a loan, as the national carrier wants to diversify its debt portfolio, said its chief financial officer Phumeza Nhantsi.
SAA was appearing before the standing committee on finance on Tuesday about its quarterly report and turnaround plan.
In an initial document, distributed to committee members on Monday, SAA stated that it made a loss of R734m year to date, which is for the months of April and May 2017.
Nhantsi told journalists after the briefing that the remaining debt obligation after negotiations is R2.3bn and that SAA managed to negotiate that the balance be rolled over.
She pointed out that it is not a case of lenders “recalling” SAA’s loans. “The loan is maturing and one of the lenders said it would not extend the loan.”
Asked if SAA has the cash reserves to honour the repayment, Nhantsi said SAA is working with government to “find a solution”.
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