South Africa to bail out indebted airline as it seeks buyers
JOHANNESBURG - South Africa’s government is talking with potential investors in the state-owned airline in an attempt to ease the continuing burden the company puts on the national budget.
“I am pleased to learn that there are conversations involving South African Airways and potential equity partners, which would liberate the fiscus from this SAA sword of Damocles,” Finance Minister Tito Mboweni told lawmakers in Cape Town Wednesday.
The government will repay loss-making SAA’s outstanding government-guaranteed debt of 9.2 billion rand ($629 million) over the next three years, the National Treasury said in the medium-term budget policy statement. Lenders are demanding a firm repayment plan as a condition for agreeing to extend more funding, SAA has said.
SAA is one of several state-owned companies, including power utility Eskom Holdings SOC Ltd., the South African Broadcasting Corp. and state arms manufacturer Denel SOC Ltd. that are fighting poor finances after years of mismanagement and alleged corruption. A combination of bailouts for government firms, declining economic growth and falling tax revenue will cause the budget deficit to widen to 5.9% of gross domestic product in the fiscal year.
Identifiying an equity partner to invest in SAA has been proposed in the past, though no buyer has officially come forward. However, Ethiopian Airlines Group Chief Executive Officer Tewolde Gebre Mariam said earlier this month his airline would consider taking a stake -- if the South African goverment made the request.
SAA has incurred over 28 billion rand in cumulative losses over the last 13 years and missed the deadline to submit its earnings for the financial year ending March to parliament. While SAA recently received a 5.5 billion-rand lifeline to extend maturities on outstanding debt, it hasn’t been able to reach an affordable repayment plan with creditors.
“SAA is unlikely to ever generate sufficient cash flow to sustain operations in its current configuration,” Mboweni said in a written copy of his speech.
Funding for SAA and its South African Express unit, the SABC and Denel amounts to 10.8 billion rand, which is almost the entire contingency reserve allocation for the fiscal year, according to the government.
SA Express Closure
“Maybe the time has come for us to consider selling or closing down South African Express, which would be an interesting case study if in future you want to close something else,” the finance minister told reporters.
State-owned companies that require support from government will be held to “the highest standard of corporate governance” and will be closed if their business models are outdated, Mboweni said. In addition, failure to meet financial targets and service objectives will see managers and their teams forfeit bonuses or salary increases, take pay cuts or in some cases even lose their jobs.
Here’s an update on the situation at other state-owned enterprises:
Eskom: the state plans an additional 10 billion-rand bailout over the next three years.
Denel: the government is seeking a chief restructuring officer to execute a turnaround plan after granting a 1.8 billion-rand bailout in August.
SABC: The Treasury and the Department of Communications are working to ensure the broadcaster meets necessary conditions to receive the remaining 1.1 billion rand of a 3.2 billion-rand bailout.
South African National Roads Agency: It’s used 30.3 billion rand of a 38.9 billion-rand government guarantee by the end of March; it’s expected to repay 10.7 billion rand of maturing debt obligations and 10.8 billion in interest repayments.
Road Accident Fund: The RAF is expected to become the government’s largest contingent liability by 2021-22, claims against the fund have grown faster than the fuel levy.