SAA receives remainder of R10.5-billion bailout

The Department of Public Enterprises says that South African Airways (SAA) could exit administration at the end of March on the back of fresh funding and a possible equity partner.

In a presentation parliament on Wednesday (3 February), the department said that the signing of the recent Appropriations Act will allow the remainder of a R10.5 billion bailout to flow to the company, Reuters reports

It added that a decision on an equity partner could be made by the end of March. The Department said that a plan for SAA to resume operations had not yet been agreed.

SAA has been unprofitable for almost a decade, surviving on state bailouts and government debt guarantees, and was placed under administration a year ago.

The carrier has been lying dormant since March 2020, when the fleet was grounded due to travel bans to contain the coronavirus.

In October, Finance minister Tito Mboweni agreed to fund a revival plan that includes firing almost 80% of SAA’s workforce. The revival plan was calculated by the administrators to cost about R10.5 billion.

Why government is saving SAA

In a response to parliamentary questions in November, Deputy president David Mabuza justified government’s decision to save SAA and extend billions more to the struggling national airline.

Mabuza said that even as Treasury reviews government spending to improve efficiency, the country should ‘sharpen its conversations’ on initiatives which contribute to the empowerment of ordinary people and job creation.

“On the matter of government funding of the South African Airways, we must clarify upfront that the delivery of social and other services, and investing in the country’s state-owned enterprises as crucial drivers for development, should not be seen as mutually exclusive,” he said.

“On the contrary, funding of SAA should be understood in line with preserving strategic and catalytic state instruments for transformation, growth, development, service delivery and employment creation.”

Mabuza said that when cabinet approved the support of a R10.5 billion allocation to SAA, it did ‘appreciate’ the state of the country’s finances.

“As government, we considered obligations of the state especially if the airline were to be liquidated.

“We understood that this could be achieved through the reprioritisation in budget allocations, and that departments will have to adjust spending priorities and programmes to take into account the revised baseline allocations over the next three years.”

In doing so, Mabuza said that government will minimise any adverse impact that the reprioritisation may have on the delivery of social and other services.

“Even as we reprioritised the budget, the consolidated expenditure over the next three years shows that there has been no negative decrease on education, health, community development and social development,” he said.

He said that the benefits of ensuring that SAA is kept afloat and contributes to the country’s economy, far outweighs those of collapsing the national carrier.

Mabuza said that some of the reasons that the national carries will remain open, include:

  • Government is able to facilitate international and regional trade, through reliable air connectivity in the region, especially the movement of people and goods;
  • Indirect benefits in the supply chain including food and beverage, retail goods, business services for example, call centres, transport and manufacturing of goods further contribute to the economy;
  • There is direct contribution to the country’s tourism and job creation in the sector;
  • Productivity levels are improved across the economy as SAA Technical’s aircraft maintenance provides services to other local airlines that do not have maintenance licensing;
  •  There is advancement of the country’s innovation and skills development through SAA’s Cadet Programme, as well as contributing to the advancement of the aerospace industry’s technical capability.

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SAA receives remainder of R10.5-billion bailout