South Africa’s government is talking with potential investors in the state-owned airline to ease the continuing burden the company puts on the national budget.
“I am pleased to learn that there are conversations involving South African Airways and potential equity partners, which would liberate the fiscus from this SAA sword of Damocles,” Finance Minister Tito Mboweni told lawmakers in Cape Town Wednesday.
The government will repay loss-making SAA’s outstanding government-guaranteed debt of 9.2 billion rand ($629 million) over the next three years, the National Treasury said in the medium-term budget policy statement. Lenders are demanding a firm repayment plan as a condition for agreeing to extend more funding, SAA has said.
The airline is one of several state-owned companies, including power utility Eskom Holdings SOC Ltd., the South African Broadcasting Corp. and state arms manufacturer Denel SOC Ltd. that are fighting poor finances after years of mismanagement and alleged corruption. A combination of bailouts for government firms, declining economic growth and falling tax revenue will cause the budget deficit to widen to 5.9% of gross domestic product in the current fiscal year.
Identifiying an equity partner to invest in SAA has been proposed in the past, though no buyer has officially come forward. Ethiopian Airlines Group Chief Executive Officer Tewolde Gebre Mariam said earlier this month his airline would consider taking a stake -- if the South African government made the request.
“We’re beginning to explore what is possible, but we have to get SAA back of its feet first for somebody to be interested in marrying it,” Public Enterprises Minister Pravin Gordhan said in an interview. “We’ve got some hard work to do.“
SAA Bailout
SAA has incurred more than 28 billion rand in cumulative losses over the last 13 years and missed the deadline to submit its earnings for the financial year ending March. While it recently received a 5.5 billion-rand lifeline to extend maturities on outstanding debt, it hasn’t been able to reach an affordable repayment plan with creditors.
“SAA is unlikely to ever generate sufficient cash flow to sustain operations in its current configuration,” Mboweni said.
Funding for SAA and its South African Express unit, the SABC and Denel amounts to 10.8 billion rand, which is almost the entire contingency reserve allocation for the fiscal year, according to the government.
“Maybe the time has come for us to consider selling or closing down South African Express, which would be an interesting case study if in future you want to close something else,” the finance minister told reporters.
©2019 Bloomberg L.P.
RECOMMENDED FOR YOU
POPULAR