Fears that government will use COVID-19 relief funds to bail out SAA

The government will be forced to appropriate funds from other initiatives to help fund the R10.4-billion it has promised to the funding of a “New SAA”, according to a report by the Sunday Times.

The report said there are concerns that the government may decide to use funds earmarked for youth unemployment schemes as part of President Ramaphosa’s COVID-19 relief package.

Mboweni will reportedly ask other ministers to source funding for the failed airline’s restructuring from within their own budgets, although a special appropriation bill will need to be drafted to enable this action.

Major local banks have been approached to provide bridge financing for the airline’s bailout, although they have reportedly been reluctant to give SAA any more funding.

The government’s resolution to once again bail out SAA with public funds has raised concerns among financial analysts, one of whom told the Sunday Times that it was lucky Mboweni had not threatened to resign.

Ninety One head of SA investments Nazmeera Moola told the publication that if all the government is doing is putting more money down the drain, it will be negatively received no matter the source of the funds.

“If SAA brings in a partner that is viable, who is going to take over the running of the airline without interference from the government, it could be interesting,” she said.

Treasury reluctant to fund new SAA

Despite being reluctant to give another bailout to the failed state-owned airline, National Treasury officials are complying with orders to do so.

Sources recently told Bloomberg that the National Treasury is trying to reprioritise funds in the medium-term expenditure framework due next month to provide the remaining funds required to get SAA back in the air.

These accounts confirmed reports that the funding for the state-owned airline would come from other government departments and programmes, and may undermine efforts to revive the South African economy following the COVID-19 pandemic.

Minister of Public Enterprises Pravin Gordhan has previously stated the government is “scraping all the barrels” to come up with the funding it has promised to bail out the airline.

Financial analysts have expressed concern at the government’s willingness to continue pouring state funds into SAA, stating that while R10.4 billion is not much compared to the vast amounts sunk into the airline over its lifetime, it is only the start of what is needed in the coming years.

Labour unions recently called for President Cyril Ramaphosa to intervene in the SAA bailout, stating that it was unfair that workers are being taken “from pillar to post” and that nobody is taking responsibility for the latest failure to keep SAA running.

“When we met with Ramaphosa and the ANC top six at Luthuli House, they gave us the assurance that they supported a restructured SAA that is free of the baggage of the past and is viable,” the unions said.

“The president gave an undertaking to us directly that he supported the turnaround of SAA, so we’re calling on him to keep his promise.”

Government interference will hurt the “New SAA”

Outgoing Mango CEO and former SAA acting CEO Nico Bezuidenhout has commented on the government’s plan to fund SAA, stating that there must be no interference in the airline’s operations.

“You’d want a situation where shareholders manage via a board of directors and allow the company to pursue a strategic direction without any interference,” Bezuidenhout said.

He added that recent statements by the government were tentatively positive in this regard, suggesting there is less desire for state control over the airline’s operations.

“Government seems to be saying it doesn’t have to directly manage and run SAA – it could be done by alternative shareholders with the government having a reduced stake,” he said.

Bezuidenhout believes this approach would greatly improve SAA’s chance of success, stating that airlines cannot be run like a government department – they need to be nimble and quick to react.

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Fears that government will use COVID-19 relief funds to bail out SAA