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Collapsing Airline

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South Africa’s state-owned flag carrier is on the brink of financial collapse after it paid only half of staff salaries this month and struggled to secure funds to survive.

South African Airways suffered a “sudden deterioration” in its finances after a recent strike grounded flights, Pravin Gordhan, minister for state-owned companies, said on Wednesday.

The government is working with the airline “to urgently formulate immediate actions that will be required to provide support to enable SAA to carry on its business,” he said.

The airline, once Africa’s largest, may have to file for liquidation if it cannot secure R2bn ($135m) of working capital in the next few days, people familiar with the matter said.

SAA needs a government guarantee to borrow the capital from banks but Tito Mboweni, the finance minister, has been reluctant to approve further bailouts.

The airline’s fate poses a dilemma for President Cyril Ramaphosa, who has pledged to turn round state companies that were looted under his predecessor, Jacob Zuma. But he is also under pressure to shore up strained public finances.

This month’s strike over planned job cuts grounded SAA domestic and international flights for days as Mr Ramaphosa’s government clashed with unions.

SAA has needed billions of dollars in state aid to stay aloft in the past two decades but graft and waste have left it struggling to compete with resurgent African and Gulf airlines.

“SAA competes in a cut-throat industry with razor-thin margins. There are 50 airlines serving South Africa,” said Martin Kingston, a member of SAA’s board.

The airline has failed to produce accounts for the past two years because of doubts as to whether it remains a going concern.

Mr Mboweni’s Treasury has already agreed to repay R9.2bn in debts that will come due for the airline in the next three years.

However, last month Mr Mboweni drew a line over handing over more money for an airline that he regards as a middle-class subsidy in a deeply unequal society.

Mr Mboweni is battling to find funds to bail out Eskom, the blackout-prone state power monopoly whose $30bn debts dwarf SAA. Eskom is deemed a higher priority as it generates nearly all of South Africa’s electricity.

“The minister of finance is in an extremely difficult situation. He is highly fiscally constrained and one has to ask whether he and he can continually, in his words, bail out SOEs,” Mr Kingston said.

SAA and South Africa’s Treasury did not immediately respond to requests for comment.

A liquidation may impose steep costs on Mr Ramaphosa’s government, as it would have to pay out on guarantees to lenders to SAA in a default.

Solidarity, a South African trade union, has applied to place SAA in business rescue, a liquidation alternative. But bankers have said that this would be impractical as business rescue requires financial resources SAA does not have.

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Cyprian, Is Nyakundi

Cyprian is a blogger who has an interest in politics, news, current affairs, people and anything that is of interest to society. My aim is to inform and update readers with the most accurate information.

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