South Africa cuts off funding line to state-owned airline

South African Airways has been denied any further funding by its government owner as the national carrier looks for ways to recover from the coronavirus crisis and a local form of bankruptcy protection.

The airline’s administrators, who were put in charge in December, were told by the state to instead source cash from available resources, according to a letter they sent to affected parties and to Bloomberg News dated April 14.

“We are currently assessing the impact of this development on the business-rescue process and will communicate any decisions to be made,” they said in the letter.

South African Airways, which began operations in 1934, has racked up 26 billion rand ($1.4 billion) in losses over the last six years and has depended on a series of state bailouts to keep operating. The grounding of all of its passenger flights, aside from charters to repatriate stranded citizens, due to the coronavirus lockdown have further decimated its revenue stream.

Finance Minister Tito Mboweni has long advocated shutting off funding for the airline, and earlier Tuesday cited the carrier’s closure as a way to save funds as the country deals with the fallout of the coronavirus pandemic. Even before the Covid-19 outbreak ground global travel to a halt, the administrators had cut routes and started consultations with more than 4,700 employees about job losses.

“All options are now blocked to any form of real continuation of the airline,” said Peter Attard Montalto, head of capital markets research at Intellidex. “Basically the only option now is liquidation.”

The development is a blow to the ambitions of Public Enterprises Minister Pravin Gordhan, who has been keen to keep the airline running to both preserve jobs and act as a flagship carrier for the country. However, he told the business-rescue practitioners that the virus had strained the government’s finances and he couldn’t agree to their request to extend foreign borrowing limits by 10 billion rand, according to a second letter seen by Bloomberg News.

SAA’s external debt is guaranteed by the state in the event of the carrier’s collapse.

“We are of the firm conviction that South Africa needs a viable and sustainable set of airlines,” the Department of Public Enterprises, which falls under Gordhan, said in a statement late Tuesday. “We must urgently determine the operating and business model for a rescued airline, with a sustainable financial model.”