South Africa - Cape Town - 14 November 2019 - South African Airlines check-in desk at Cape Town International Airport. Picture: Henk Kruger/African News Agency (ANA)
South Africa - Cape Town - 14 November 2019 - South African Airlines check-in desk at Cape Town International Airport. Picture: Henk Kruger/African News Agency (ANA)

South Africa defends airline bailout as state seeks partners

By Bloomberg Time of article published Oct 29, 2020

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JOHANNESBURG - South Africa’s National Treasury has defended a controversial R10.5 billion ($641 million) lifeline for its bankrupt national airline, saying that setting it on the path to recovery will entice private investors.

“Government is not going to want to hold on to South African Airways at all costs,” Treasury Director-General Dondo Mogajane said in an interview after the bailout was announced on Wednesday. “If that means giving up the majority shareholding, that will happen.”

While the airline hasn’t made a profit for almost a decade and has long relied on state support to fly planes, administrators appointed late last year have produced a viable rescue plan, Mogajane said. If it can be implemented, as many as five potential strategic-equity partners are waiting in the wings, he said, without naming them.

“Most of them are saying fix the old, pay off the debt -- and then we will come on,” Mogajane said.

The claim that a number of private investors are queuing up to take responsibility for SAA is a familiar one, having been made repeatedly this year by Public Enterprises Minister Pravin Gordhan and his department, the most vocal supporters of the airline’s rescue.

Yet so far, the only potential backer to officially come forward has been Ethiopian Airlines Group, Africa’s biggest carrier, which made clear it was interested in an operational role rather than providing cash. Airlines around the world are battling their own crises due a slump in demand for air travel amid the coronavirus pandemic, and the emphasis has been firmly on cutbacks rather than expansion.

‘Financial Literacy’

Gordhan welcomed the bailout on Thursday, accusing its critics of lacking “financial literacy.” The next steps will include the appointment of an interim board, chief executive officer and chief financial officer, he said in a statement. SAA has been run on an acting basis by Chief Commercial Officer Philip Saunders since July.

SAA is too important for the local aviation market to fail, said Mogajane. The cash will be used partly to reduce the workforce by about 80% to 1,000 people as well as basic startup costs, according to the rescue plan published in June, and come from government departments including education, police and health. The alternative to a bailout or a sale was the liquidation of the 86-year-old carrier.

SAA hasn’t flown a commercial flight since its planes were grounded to contain the coronavirus in March, and travel restrictions remain in place to several key destinations to prevent a resurgence in infections.

BLOOMBERG

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