‘Liquidation only option’ as govt denies SAA funding request – experts

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SAA has been denied further funding by government as the national carrier looks for ways to recover from the Covid-19 coronavirus crisis and a local form of bankruptcy protection.

The airline’s business rescue administrators, who were put in charge in December, were told by government to instead source cash from available resources, according to a letter sent to affected parties and to Bloomberg News dated April 14.

“We are currently assessing the impact of this development on the business rescue process and will communicate any decisions to be made,” read the letter.

SAA, which began operations in 1934, has racked up R26 billion in losses over the last six years and has depended on a series of government bailouts to keep operating.

All options are now blocked to any form of real continuation of the airline.
Peter Attard Montalto

The grounding of all of its passenger flights, aside from charters to repatriate stranded citizens, due to the Covid-19 lockdown have further decimated its revenue stream.

Finance Minister Tito Mboweni has long advocated shutting off funding for the airline.

Earlier on Tuesday he cited the carrier’s closure as a way to save funds as the country deals with the fallout of the Covid-19 pandemic.

Even before the outbreak ground global travel to a halt, the administrators had cut local and international routes and started consultations with more than 4 700 employees about job losses.

“All options are now blocked to any form of real continuation of the airline,” said Peter Attard Montalto, head of capital markets research at Intellidex.

“Basically the only option now is liquidation,” he said.

The development is a blow to the ambitions of Public Enterprises Minister Pravin Gordhan, who has been keen to keep the airline running to both preserve jobs and act as a flagship carrier for the country.

However, Gordhan told the business rescue practitioners that the coronavirus had strained government’s finances and he couldn’t agree to their request to extend foreign borrowing limits by R10 billion, according to a second letter seen by Bloomberg News.

SAA’s external debt is guaranteed by government in the event of the carrier’s collapse.

“We are of the firm conviction that South Africa needs a viable and sustainable set of airlines,” the department of public enterprises said in a statement late on Tuesday.

“We must urgently determine the operating and business model for a rescued airline, with a sustainable financial model.”

– Bloomberg


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