Public Enterprises Ministry denies reports that it agreed to fund SAA restructuring

The Department of Public Enterprises has confirmed that it has received a draft copy of the South African Airways (SAA) Rescue Plan from the airlines’ Business Rescue Practitioners, but says that contrary to some reports, it has not yet taken a position whether or not to approve it.

“No decisions have been taken on some of the proposals it contains,” the department said in a statement. “We will review the plan, explore various funding options and communicate our decisions.”

The draft plan, among others, requires government to provide a working capital of R2 billion to start a new restructured airline and to provide a further R2 billion to fund retrenchment packages for current SAA employees.

SAA entered business rescue, a local form of bankruptcy protection, in December after almost a decade of financial losses, with its fortunes deteriorating when the COVID-19 pandemic forced it to halt all commercial passenger flights in March.

The South African government said in April that it would not provide further funding, but the draft rescue plan drawn up by the administrators and made public by the Democratic Alliance (DA) on Monday said the government had agreed to fund the restructuring.

In the video below, is a discussion on tensions between SAA and the Business Rescue Practitioners:

Ministry pressure

The administrators last week said they were revising the plan after government submitted a restructuring proposal for them to consider. The Public Enterprises Ministry has been pressuring the administrators to salvage SAA in some form after an earlier version of their plan proposed that the airline be wound down.

The latest draft, dated May 31, said that a working capital injection of at least R2 billion is needed for the restructuring, plus a further R2 billion to fund employee layoffs and an allocation of at least R600 million to repay some creditors.

That is on top of R16.4 billion the government set aside in February to repay SAA’s guaranteed debt and to cover debt-servicing costs. The draft plan proposed that the airline’s workforce be halved to about 2 500 while also reducing its fleet by half to about 20 aircraft in the next few years.

The administrators said that prior to COVID-19, they had been speaking to three parties potentially interested in becoming a strategic equity partner or forming an alliance agreement with SAA. – Additional reporting by Reuters