South Africa Backs Rescue Plan for State Airline 

South Africa’s government urged the national airline’s creditors and labor groups to support a rescue plan that includes at least 26.7 billion rand ($1.5 billion) of state funding and thousands of job losses.

The proposal published by South African Airways’ administrators last week is the only alternative to liquidation and will lay the groundwork for a new, viable carrier, the Department of Public Enterprises said in a statement. Lenders and other creditors are due to vote on Thursday, and the plan needs at least 75% support.

SAA was placed in a local form of bankruptcy protection six months ago, and the government has frequently clashed with the team of administrators over their restructuring proposals, refusing a funding request in April. The belated endorsement of their most recent plan represents a change of heart, though it remains to be seen where the full bailout will come from after Finance Minister Tito Mboweni didn’t include SAA in a Wednesday special budget to confront the economic devastation brought by the coronavirus.

Mboweni set aside 16.4 billion rand to repay SAA lenders in his February budget, so he needed to find more than 10 billion randat a time that national finances are particularly stretched. The minister has repeatedly opposed ongoing support for SAA, clashing with Public Enterprises Minister Pravin Gordhan, and in the event chose only the Land and Agricultural Development Bank as a recipient of fresh funding.

“A positive vote to finalize the business-rescue process would be the most expeditious option for the national carrier to restructure its affairs, its business, debts and other liabilities,” the DPE said.

Rival’s Appeal

One potential barrier to the rescue was removed after a court rejected an appeal brought by SA Airlink, a rival domestic carrier that says it’s owed 700 million rand in ticket revenue. The smaller airline wants SAA liquidated, but the High Court of Johannesburg deemed the matter not urgent.

Labor groups have also reacted furiously to the proposal, which will see SAA’s workforce reduced by almost 80% to 1,000 people. Both the National Union of Metalworkers of South Africa and the South African Cabin Crew Association said last week they are considering legal options. The DPE countered that departing employees will be given severance and retirement packages reflecting years of service, as opposed to a 32,000-rand flat payout under liquidation.

SAA’s planes have been mostly grounded for three months due to travel bans imposed to contain the Covid-19 pandemic, which has wrecked havoc on the aviation industry worldwide. The government, which has owned the airline outright since Swissair gave up a 20% stake 18 years ago, sees private funding as a way out of the crisis and said Tuesday it has received offers from potential investors.

A successful transaction could lead to the state ceding majority ownership, Kgathatso Tlhakudi, deputy director-general at department of public enterprises, told Johannesburg-based Radio 702 on Wednesday. “If we find the right partner who is prepared to inject the technology and access to markets that we require for the airline, and they are assuming management control, we are quite comfortable to let go of that,” he said.

©2020 Bloomberg L.P.

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