South African banks have insisted on assurance from the government that the billions of rand they have lent to South African Airways (SAA) will be paid back, according to report by the City Press.
The bankrupt airline’s debt to local banks is guaranteed by the government, and additional funds are being made available to bail out the failed airline.
Banks are not confident in how this additional funding will be spent, however, and many reportedly fear that their money will be caught up in a liquidation process.
Liquidation remains a looming threat for SAA, as if it is unable to leverage the government’s commitment and convince relevant stakeholders to support its business rescue plan, it will be forced to liquidate.
The South African government announced last week that it had committed to mobilising funding for the creation of a new SAA airline out of the failed airline’s business rescue plan.
“The Department of Public Enterprises welcomes the commitment by National Treasury that the government will support and source funding for a business rescue plan for South African Airways (SAA), which will result in the emergence of a new viable sustainable, competitive national airline,” the DPE announced.
The government committed to mobilising funding for the “short, medium, and long-term requirements to create a viable and sustainable national airline,” with the commitment being signed by the Ministers of Finance and Public Enterprises on 15 July.
“Different tranches of money will be required as different aspects of the restructuring takes effect,” the DPE said.
Following this announcement, Finance Minister Tito Mboweni said that a range of funding options for SAA that would source money from the private sector are being considered.
In an answering affidavit to a case filed by the Democratic Alliance in South Africa’s High Court, the minister laid out a range of options.
Those options included seeking money from “strategic partners” or private equity as well as tapping pension funds and global financial institutions.
Mboweni added that the government had committed to “mobilise” funds for SAA, not provide them.
“The Department of Public Enterprises media statement stops short of reflecting a commitment by the government to fund the implementation of the business rescue plan,” Mboweni said.
“It clearly conveys government’s position, namely that it is considering various ways within which to mobilise funding.”
SAA’s business rescue plan will comprise a significant number of lay-offs, with thousands of employees being affected.
In its previous statement, the DPE noted that the restructuring of SAA would include 2,700 employees being issued with severance packages that meet the minimum requirements of the Labour Relations Act.
These packages also provide incentives to employees at the lower-end of the remuneration scale to ensure they are not worse-off.
“The DPE is cognizant that airlines across the world are in turmoil due to the COVID-19 pandemic,” the department said.
“There are possibilities for airline partnerships to improve the scale and scope of the aviation industry and ensure continuity of value creation to the South African economy.”