R2.2 billion bailout not a free ride for SAA: Gigaba

Finance minister Malusi Gigaba says that the R2.2 billion emergency bailout for South Africa Airways isn’t such a free ride, and important, urgent decisions need to be made to turn the business around.

Gigaba faced criticism over the weekend for signing off on yet another multi-billion rand bailout for the failing airline, without attaching stringent conditions to the agreement.

Speaking at a media briefing on Monday, the finance minister said that the funds were procured through emergency channels, and that this still needs to be accounted for to Parliament.

He said that at least one of the conditions attached – which has been a condition for some time – is that SAA hire a permanent, and stable CEO. Recent media reports point to Vodacom executive director of regional operations, Vuyani Jarana, as the favoured candidate.

Gigaba said that government needs to urgently resolve the SAA ‘dilemma’, as the airline kept failing to demonstrate any responsibility, and Treasury was ‘sick and tired’ of supporting it.

He said that the airline was extending jet fuel contracts, which were proving to be very expensive, and that decisions needed to be taken to turn things around. A Treasury task team would be established to implement a turnaround strategy.

According to economist Mike Schussler, this is now the third major bailout of SAA – and each time the airline promises it will be last, but it never is.

The latest financial year data available (for 2015), showed the airline posting a R1.9 billion loss – an increased loss from R1.5 billion the year before. Early indications in 2017 pointed to the airline posting a loss as high as R4.5 billion in the 2016 financial year.

The airline continues to lose R370,000 a month.

The emergency bailout had to be implemented as one of SAA’s financiers, Standard Chartered, reportedly denied the airline’s application to extend the loan facility.

According to Schussler, this spells bad news for not only SAA’s credibility, but also for all SOEs and South Africa as a whole. He warned that ratings agencies will have taken notice, and that Gigaba has likely factored in another credit downgrade.

Gigaba, however, said that Standard Chartered declining to extend SAA’s loan was not a reflection of a lack of faith in South Africa – only in SAA.

Read: R2.2 billion from state emergency fund used to bail out failing SAA

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R2.2 billion bailout not a free ride for SAA: Gigaba