Government has shot down South African Airways' funding request, putting a spanner in the works for the embattled airline's business rescue plan.
In a letter to the airline's business rescue practitioners, the department of public enterprises (DPE) said government cannot support SAA's request for further funding of R10 billion or provide any future funding to sustain the business rescue process. Government will also not provide any further guarantees to SAA to facilitate borrowing, it said.
The airline made the request for the additional R10 billion on 2 April. The letter, dated 10 April, shows that the airline wanted to increase its foreign currency borrowing limit.
"Government will not support the extension of the foreign currency borrowing limit to permit foreign financing of the business rescue plan, nor for a care and maintenance budget as you have proposed," read the DPE's letter.
The BRPs told Fin24 that they were "currently assessing" the impact of the latest development on the business rescue process and would communicate any decisions in due course.
'Money into a hole'
Economist and director of Econometrix, Azar Jammine, told Fin24 that at some point government was bound to realise that supporting an unsustainable airline was taking money away from other priorities. Faced with the pressures of the coronavirus pandemic and needing to redirect fiscal resources to ramping up testing, it was a good call to make, he said.
"SAA is hardly functioning at the moment other than flying on rescue missions. They have no revenue coming in. So, the only way they can survive is by pouring more billions of rands into them which is like pouring money into a hole," said Jammine.
SAA was placed in voluntary business rescue in December and government announced that it would avail R4 billion to the airline to deal with its short-term liquidity problems until 31 January 2020. But of the R4 billion package, government was only able to secure R2 billion and SAA ran out of money in mid-January, forcing it to halt operations.
The joint business rescue practitioners (BRPs) say the lockdown, which banned air travel, forced the airline to request an extension of its foreign borrowing as it now had no income. The BRPs said they are reviewing the situation following government's decision to turn down the request for help.
In a letter to affected parties, which include creditors and banks, the BRPs said the airline is still operating, conducting charter flights to return South Africans home and repatriate foreign nationals to various countries. Its cargo division operates unhindered during the lockdown to deliver critical medical supplies to the country, they added.
SAA went into business rescue shortly after a crippling strike in November 2019.
* Additional reporting by Carin Smith