Passengers board a South African Airways plane at the Port Elizabeth International Airport in the Eastern Cape province, South Africa, September 30, 2018. REUTERS/Siphiwe Sibeko/File Photo
CAPE TOWN (Reuters) – South African Airways (SAA) is likely to get a 2 billion rand ($136 million) boost from the government and another 2 billion from existing lenders as it enters rescue proceedings from Dec. 5, a minister said on Thursday.
“It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructure of the airline,” Pravin Gordhan, minister of public enterprises, said in a statement.
SAA, which has not made a profit since 2011 and has depended on government bailouts, suffered an employee strike last month that forced it to cancel hundreds of flights and pushed it to the brink of collapse. [nL8N2821M2]
On Wednesday, a deputy minister, declined to be identified due to the sensitivity of the matter, told Reuters 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”. [nL8N28E5Y4]
Outlining what is expected from the process – which Gordhan described as the “optimal mechanism” to restore confidence in SAA as it seeks a future equity investor – Gordhan said the 2 billion rand provided by existing lenders will be guaranteed by the government and repayable 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.
In a business rescue process, a specialist administrator takes control of a 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.
“This initiative demonstrates that the government will undertake the necessary bold steps in order to reposition its assets in such a way that they do not continue to depend on the fiscus and thereby burden taxpayers,” Gordhan said.
($1 = 14.7075 rand)
Reporting by Wendell Roelf; Editing by Kim Coghill and Christopher Cushing