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Last-Chance Saloon

Clock ticking for South African Airways as funding fails to arrive

By David Whitehouse
Posted on Friday, 18 September 2020 10:17

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

South African Airways creditors meet today after the latest deadline to raise the 10.4b rand ($650m) needed to keep the airline afloat was missed.

The business rescue practitioners who are trying to turn SAA around said on 10 September that funds for operational expenditure were “near depletion” and set a deadline of 17 September for new funding. A new notice on Thursday said that deadline had been missed, and called a creditors meeting scheduled for today 18 September.

The bank has been under bankruptcy protection and run by administrators since December. SAA creditors voted in July to support a business rescue plan. The government says that it is still trying to get the required funding and that it is assessing proposals from several equity investors.

READ MORE SAA: Will Mboweni loosen purse strings to rescue South African Airways?

Some suspect that no new investment will arrive. “I think this is the end of SAA and that is ok,” says Johann Els, chief economist at Old Mutual Investment in Cape Town. “If a private investor could be found, then that is great. But no taxpayer money.”

  • “Bankrupt state-owned enterprises (SOEs) should be allowed to fail,” says Els. “I am therefore happy that the Treasury has not provided more funding to keep SAA afloat.”
  • The outcome could even be positive for investor confidence in South Africa, he says. “Even if there are no proceeds from the sale of SOEs, the end of public funding and private management should be a huge boost to investor confidence.”

Brinkmanship

The airline, which has not made a profit since 2011, is more important in symbolic than financial terms. For the unions, SAA must be defended at all costs. For the financial community, SAA is emblematic of the long-term mismanagement of the country’s SOEs.

In terms of public finances, the success or failure or SAA does not matter that much. “It is just not that significant given the scale of government bond supply,” says Ruen Naidu, head of macro strategies at Argon Asset Management in Cape Town.

Still, job losses as a result of poor management are “an unfortunate outcome” in an economy already suffering from high unemployment, says Naidu.

READ MORE South African SAA staff not paid for May, desperate for answers

There are still credible investors who may come to the rescue. Earlier this month, Ethiopian Airlines said it was in talks on possible involvement in a rescue.

While a private-sector business in such a position would long since have failed, the date of SAA remains highly political. For the government, the impact of more job losses outweighs financial considerations.

So the logical course for any new investor dealing with a government that fears the fallout from bankruptcy will be to wait as long as possible.

Bottom line

It’s likely that any potential investor will push South Africa’s government to the brink before injecting any cash.

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