Government will help struggling national carrier South African Airways (SAA) repay its R9.2bn in government-guaranteed debt over the next three years, Minister of Finance Tito Mboweni announced on Wednesday when he tabled his second mini budget.
"In its current configuration, SAA is unlikely to generate sufficient cash flow to sustain operations," states the mini budget document. "It is unable to repay outstanding government guaranteed debt of R9.2bn. Government will repay this debt over the next three years to honour its contractual obligation."
Treasury said operational changes were urgently needed at the struggling flag carrier, and Mboweni did not mince his words in his budget address.
"We have essentially chosen to subsidise the middle class and wealthy flying around the country and other parts of the world, rather than the ordinary workers who sit in old trains from the townships every day, often getting stuck and being late for work," he said.
"We are also subsidising the wealthy bond holders, who hold government-guaranteed debt but receive higher yields without additional risk."
The minister also confirmed that the carrier is in discussions with potential equity partners to "liberate the fiscus from this SAA sword of Damocles", though he did not provide any further information.
Treasury has already transferred R5.5bn to the airline in the current year – part of the R37bn support package to struggling state-owned entities. The funds were to enable the carrier to extend maturities on outstanding debt obligations and give it time to develop an affordable repayment plan with creditors, according to the policy document.
SAA requires R21.7bn to support its turnaround plan, Fin24 previously reported. R5bn recapitalisation was approved for 2018/19, and a further R5.5bn approved for 2019/20.
Without a debt repayment plan supported by government, the airline's lenders are unlikely to extend more loans to SAA beyond the end of the fiscal year. "If this happens, government is contractually required to step in and repay its debt."
Over R28bn in cumulative losses
Treasury's document notes that over the past 13 years, SAA's cumulative losses amounted to over R28bn.
The airline's financial position is so dire that it failed to finalise its financial statements for the 2018/19 year on time. Subsequently the auditor-general could not complete its audit assessment of the airline, Fin24 previously reported.
Public Enterprises Minister Pravin Gordhan told Parliament that the financial statements would be tabled as soon as the going concern challenges are resolved.