Government has approved the transfer of funds from the National Revenue Fund to SAA, to allow the airline to address its debt obligations to Citibank – thereby avoiding a default.
In a statement released by National Treasury on Friday, government said that the funds will also be used to assist SAA with its immediate working capital requirements.
“This payment was done in terms of section 16 of the Public Finance Management Act,” Treasury said.
“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. The due process laid out in the legislation will be followed.”
A default by the airline on the R3 billion payment would have triggered a call on the guarantee exposure totaling R16.4 billion, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.
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.
Treasury said that several options are being explored and an update is expected during the budget statement on 25 October 2017.
“Given the nature of the problems at SAA, section 16 of the PFMA had to be used as the last resort,” said Treasury.
Treasury also confirmed that permanent chief executive officer for SAA, Vuyani Jarana, will begin working on his role from 1 November 2017.
“As communicated before, 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,” it said.
National Treasury approved a R2.2 billion bailout for SAA earlier in the year on a Standard Chartered loan. That bailout came out of the state’s emergency funds, so as to not impact the national budget.