South African Airways To Get Another $1.2 Billion From Government

The fight continues to save struggling national carrier South African Airways. In May, the team of administrators overseeing the airline’s finances was given 25 days to come up with a plan to save the business. Today, a draft proposal has been announced, which includes a 21 billion rand ($1.2 billion) bailout loan to help the airline overcome the effects of the coronavirus outbreak.

This draft proposal could be a last resort for the airline as the government deadline approaches. Photo: Getty Images.

Deadline date approaches

The mission to save South African Airways (SAA) has been ongoing since late last year, and it’s not over yet. The next stage in the rescue plan will see the South African government provide a substantial amount of money to help pay SAA’s creditors.
Currently, the proposal is not an official request and is only an initial discussion. However, time is short. In May, the airline was given 25 days to come up with a formal rescue plan. As this deadline approaches, the administrative team has come up with a final proposal.

According to the Democratic Alliance, in return for the loan, the government would start a new company controlled by the Department of Public Enterprises (DPE), and this company would assume all of the airline’s assets. The DPE would be responsible for all the financial costs of effectively setting up a new company and dealing with existing debt. The 21 billion rand ($1.2 billion) loan would cover these massive restructuring costs.

South African Airways
The plan is currently only a draft and has not yet bee officially put to the government. A decision needs to be made soon as the airline is out of money, and loans have failed to appear. Photo: Airbus

Multiple loans but no actual money

This is not the first loan SAA has received from the government. In February, a 16.4 billion rand ($950 million) loan was approved to pay creditors. The money for this loan has yet to appear. A short-term 2 billion rand loan from banks is due to be paid in July alongside a 3.5 billion rand ($201 million) finance package from the Development Bank of Southern Africa.

This means that SAA still doesn’t have any money coming in. The fleet was grounded entirely in March due to the government closing borders. Previously, the airline threatened to layoff all staff in an attempt to survive. The government quickly shut this idea down. The airline has some significant vocal supporters in government, including public enterprises minister Pravin Gordhan. However, vocal support is not nearly as important as financial support.

South African Airways Aircraft
There has been mounting pressure on the government to let the airline collapse because it has failed to post a profit since 2011.  Photo: Getty Images

Government support is running out

Over the past three years, the government has paid over a billion rand ($1.07 billion) to keep the airline in the skies.  Now, as the impact of the virus threatens the airline’s already precarious position, the government suddenly seems unsure of how much more to invest in the airline.

In April of this year, the government indicated it would not be providing more money for the carrier. Several politicians have been critical of just how far the government will go to save its national carrier.

The end of the line for SAA

If the decision in April was a precedent for future decisions, then this new request for a loan does not look promising. The plan is admittedly a draft version. Given the approaching deadline, makes it seem like a last resort. With mounting criticism over how much money has already been pumped into the airline, this loan request and draft plan is a decisive moment.

What do you think of SAA’s future? Will the government go for this new plan of will they decline the loan? Let us know your thoughts in the comments.