A South African minister on Thursday said the government is likely to pump 2 billion rand ($136 million) into South African Airways (SAA), while another 2 billion will be injected by existing lenders as the struggling airline enters rescue proceedings starting Dec. 5, reported Reuters.
“It must be clear that this is not a bailout,” Pravin Gordhan, minister of public enterprises, said in a statement. “This is the provision of financial assistance in order to facilitate a radical restructure of the airline.”
SAA has not made any profit since 2011 and has since been depending on government bailouts to survive. Last month, an employee strike forced the airline to cancel hundreds of flights and pushed it to the brink of collapse.
A deputy minister, who declined to be identified due to the sensitivity of the matter, told Reuters on Wednesday that he had received a letter from the secretary of the cabinet which said President Cyril Ramaphosa had called for a change of approach on SAA and instructed the government to put the airline in a voluntary business rescue process.
Gordhan described the business rescue process as the optimal mechanism to restore confidence in SAA as it seeks a future equity investor. He said the government will guarantee the 2 billion rand provided by existing lenders and will repay the amount in future budgets.
The government, via the national treasury, will provide another 2 billion rand in a “fiscally neutral manner” with the full recovery of capital and interest on existing debt not impacted by the rescue proceedings.
The business rescue process will begin with a specialist administrator taking control of the company with the aim of rehabilitating it to improve its chance of survival or securing a better return for creditors than they would receive from liquidation.
Gordhan said the government will now take necessary bold steps in order to reposition the airline’s assets in such a way that they do not continue to depend on the fiscus and thereby burden taxpayers.
