$350 million bailout for South African Airways; scouting strategic equity partner

$350 million bailout for South African Airways; scouting strategic equity partner

Sept 14, 2016: The South African government has agreed to grant a SAA ZAR5 billion ($350 million)in additional loan guarantees to bail out the beleaguered flag airline South African Airways (SAA). The government has insisted on major reforms at the carrier, including looking for a strategic equity partner. The airline said in 2015 it was “technically insolvent” and has been surviving on state-guaranteed loans. However, it pleaded that it needed further backing from the government to allow it to finalize its financial accounts. A new SAA board was approved by the country’s cabinet on Aug. 31 and, in his first meeting with its members, Finance Minister Pravin Gordhan said it would not be “business as usual” for the airline. Gordhan told board members that their primary focus was to return the airline to financial sustainability while also delivering on several other government objectives, including improved corporate governance. He added that the new loan guarantee facility had only been approved with several conditions, including the implementation of greater cost-cutting in areas such as fuel, aircraft ownership, labor, MRO and procurement. Gordhan also said airline operations had to be scaled back to focus only on profitable routes. This entails closing sectors that had been loss-making for longer than one year. The board must also actively consider a possible merger of SAA with South African Express, he said, as well as the potential introduction of a strategic equity partner, while funding had to be secured to meet the airline’s liquidity requirements.

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