South Africa Raises Funds for State Airline to $1.1 Billion

(Bloomberg) -- South Africa almost doubled the level of funding for the national airline to 16.4 billion rand ($1.1 billion), cash that will go toward supporting a restructuring plan for the technically insolvent carrier.

The bailout will be used to service and pay debt previously guaranteed by the state over the “medium term,” Finance Minister Tito Mboweni said in his budget speech in Cape Town on Wednesday. The amount compares with 9.2 billion rand earmarked for South African Airways in October.

“It is the very sincere hope of many that this intervention will lead to a sustainable airline that is not a burden to the fiscus,” Mboweni said.

SAA has been a drain on the National Treasury for several years and has racked up losses of more than 32 billion rand over the past decade. The government placed the airline in a local form of bankruptcy protection late last year, and administrators have set about reducing costs by closing routes and considering asset sales.

While the planned shuttering of multiple domestic routes at the end of this month has drawn opposition from President Cyril Ramaphosa, the government intends to respect the authority of the business-rescue process, according to Public Enterprises Minister Pravin Gordhan.

“As a stakeholder and somewhat of a creditor, we have a view, but obviously we’ll be stupid to put forward a view that brings another collapse,” he said in an interview Thursday with news website News24.

Mboweni has often stated his reluctance to support SAA while faced with bigger problems such as the $30 billion of debt owed by state-owned power utility Eskom Holdings SOC Ltd. In Wednesday’s speech he recycled an earlier reference to the airline as a ‘Sword of Damocles’ -- or an ever-present threat.

In addition to cash from the Treasury, SAA was last month given access to 3.5 billion rand from the state-owned Development Bank of Southern Africa.

--With assistance from Paul Richardson.

To contact the reporter on this story: John Bowker in Johannesburg at jbowker2@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Liezel Hill, Vernon Wessels

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