South African Treasury commits to helping source SAA funding

South Africa’s Treasury will help source the funding needed to save the country’s national airline, the Department of Public Enterprises said.

Finance Minister Tito Mboweni on Wednesday signed a letter of support for a funding plan proposed by the administrators of South African Airways, the department said in an emailed statement Thursday.

The letter commits the government “to mobilise funding for the short, medium and long term requirements to create a viable and sustainable national airline,” it said.

SAA was placed in administration in December after surviving on bailouts and government debt guarantees for several years. Initial work on a recovery plan was torpedoed by the Covid-19 pandemic, which grounded all the carrier’s commercial passenger planes from late March.

The business-rescue plan projects that 10.1 billion rand ($606 million) will be needed to pay for the severance packages of 2,700 employees, restructure the airline’s subsidiaries and clean up its balance sheet, while providing working capital to restart a newly formed carrier.

South Africa is looking to appoint a transaction adviser to sell part of the restructured airline to an equity partner. Creditors and labor unions approved the rescue plan earlier this week.

The Treasury is having to assist with SAA funding at a time when state finances are severely stretched by the pandemic. Mboweni has repeatedly voiced his reluctance to provide further bailouts to a carrier that hasn’t made a profit in almost a decade.

“It is far from clear that National Treasury is committing to anything here, only to help find the money from somewhere.,” said Peter Attard Montalto, head of capital markets research. “We may well see a repeat of December where government provided promises of funding to the business rescue practitioners, which were subsequently broken.”