State, lenders to provide R4bn for SAA
Airline will continue flying while it is being restructured
SAA will get R2bn in cash from the Treasury and another R2bn loan guarantee to raise finance from commercial banks to facilitate the business rescue process, public enterprises minister Pravin Gordhan says. The airline, which has been placed in business rescue by its board of directors, had been unable to raise finance from either the Treasury or lenders to continue operating.
SAA will get R2bn in cash from the Treasury and another R2bn loan guarantee to raise finance from commercial banks to facilitate the business rescue process, public enterprises minister Pravin Gordhan says.
The airline, which has been placed in business rescue by its board of directors, had been unable to raise finance from either the Treasury or lenders to continue operating.
The funding will enable the company to continue operating while it is being restructured.
“It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructure of the airline,” Gordhan said on Thursday.
The R2bn in cash would be provided in a “fiscally neutral way”, which will mean that the government will need to raise the money from, for instance, the sale of state assets.
The R2bn bank loan will be repaid by the Treasury from future budget appropriations.
The government has given lenders a commitment that the existing debt of R9.2bn and interest will be fully repaid and will not be affected by business rescue. This amount has already been pencilled into the government’s medium-term budget.
That means that lenders will not be subjected to a haircut, which is typically the case when an overindebted company undergoes business rescue.
The objective of the business rescue process was to avoid a disorderly collapse of the airline and create a viable and financially stable entity that would no longer be dependent on the fiscus for its survival.
“This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner,” Gordhan said.
Business rescue “will provide an opportunity to critically review the cost structure of the airline, while simultaneously attempting to retain as many jobs as possible”, he said.
“This approach also provides a structured opportunity to reorganise the state aviation assets in a way in which they are better positioned to be sustainable and attractive to an investment partner.”
The funding arrangements are particularly important as the country attempts to get its finances in order to avoid future credit ratings downgrades.
The restructuring of failing state-owned enterprises has come to be viewed as a key indicator of whether the government is committed to fiscal consolidation.
Gordhan said the initiative demonstrates that the government will undertake the necessary bold steps to reposition its assets in such a way that they do not continue to depend on the fiscus and thereby burden taxpayers.
In a statement, the SAA board of directors said the decision was unanimous and would result in a better return for the company’s creditors and shareholders, than would result from any other available solution.
The alternative of liquidation would have resulted in heavy losses as SAA’s liabilities far exceed its assets. It would also have triggered immediate financial obligations for the government as lease liabilities would have been triggered.
“The company is seeking to minimise the destruction of value across its subsidiaries and provide the best prospects for selected activities within the group to continue operating successfully,” the board’s statement said.
“SAA understands that this decision presents many challenges and uncertainties for its staff. The company will engage in targeted communication and support for all employee groups at this difficult time. SAA will endeavour to operate a new provisional timetable and will publish details shortly,”
SAA’s subsidiaries, which include low-cost carrier Mango, maintenance company SAA Technical and catering business Airchefs, will be affected by the business rescue process.