South African Airways (SAA) will require another R8 billion from government – on top of the R2 billion already promised – to execute the planned restructuring to save the business, the City Press reports.
This comes after finance minister Tito Mboweni failed to win over the ANC’s national executive committee and convince them that liquidating the failed airline was the way to go.
According to the paper, Mboweni wanted to liquidate SAA and start a new airline with a better business model; however, the risks involved with liquidation – such as debt payments and contract cancellations, which could cost R50 billion – was deemed too great.
SAA’s business rescue practitioners previously warned against liquidating the business, saying that the process would leave creditors with virtually nothing, as the company doesn’t really have that many assets to sell – especially not enough to cover its debts.
Instead, the ANC is going the route of an extensive restructuring process, which will require another R8 billion in taxpayers’ money to be handed to the airline.
The party does not see it as a bailout, however, as it would be funding a restructure process.
Funding black hole
SAA has been given almost R30 billion in government bailouts since 1999, with as much as R10 billion secured through private loans. Despite this, the business still failed.
Government is now struggling to find the backing it needs to provide SAA with the R4 billion it has already promised.
R2 billion from government’s coffers is being found, although Mboweni is reportedly hesitant about giving over the money as it would come from funding that should go to service delivery and servicing the needs of the poor.
Local banks, meanwhile, who are supposed to be putting up the other R2 billion, don’t want to do business with SAA because of its failed business operations. Giving SAA a credit line would constitute reckless lending.