South African Airways Business Rescue Gets Go-Ahead
The administrators of South African Airways said conditions for a business rescue have been met and plans to resuscitate the state-owned airline will now proceed.
The administrators didn’t disclose in a notice to affected parties on Tuesday whether the government had met their demand to place in an escrow account 16.4 billion rand ($988 million) the state has guaranteed to creditors should the carrier fail. The money will be put into a receivership by the government over the next three years and will be taken off SAA’s balance sheet, a person familiar with the situation said.
“The standard government guarantee remains in full force and effect,” the Treasury said in response to queries.
The administrators accepted a letter saying that the Treasury will “mobilize” just over 10 billion rand needed to keep the airline afloat. Finance Minister Tito Mboweni has said the funding will be sought from private investors such as “strategic partners,” or private equity.
The announcement means the airline, founded in 1934, will avoid liquidation, but the plan will see it slash its workforce to about 1,000 workers from around 4,700. It hasn’t made a profit since 2011 and has been surviving on government bailouts.
Without the 10 billion rand the airline, which used to fly to six continents as well as operating a domestic service, will struggle to restart. It needs 2 billion rand to recommence operations and 2.2 billion rand to meet severance costs for fired workers. It owes aircraft lessors about 1.7 billion rand, a reduction from the 10 billion rand initially owed, and has some other liabilities, the person said, asking not to be identified as a public statement hasn’t been made.
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