SAA, whose CEO Vuyani Jarana quit last week, will have to provide a clear payment date for an overdue R3.5bn bridging loan before the banks will consider new borrowing or roll over existing debt.
New borrowing to fund operations for 2019/2020 financial year — about R4bn — and the rollover of maturing debt by July 31 of about R9.2bn are also urgent.
This means SAA needs R16.7bn in a combination of direct transfers from the fiscus, new loans or a debt rollover. All of these need to be secured within the next few months.
Jarana quit last Wednesday citing slow decision-making, red tape and a lack of financial support from the government, essential to the turnaround strategy for the airline.
He said in his resignation letter that government support for the strategy had not been forthcoming and he had spent most of his time "dealing with liquidity and solvency issues".
Complicating the urgent need for funds is the problem that the Treasury is unable to transfer money to SAA at this point as the Appropriation Bill, which is the mechanism through which parliament approves the budget, was not passed before parliament was dissolved in March.
The Treasury said on Monday "together with the department of public enterprises, it has regular monitoring meetings where funding strategies are jointly being discussed with SAA to seek additional funding and thus avoid a default".
Government sources said the Treasury had provided "as much of a commitment as it could", subject to the approval of the bill, that it would assist SAA by using a portion of the allocation in the contingency reserve, which was money set aside to fund possible risks that might emerge, to repay the R3.5bn loan.
In February, when the budget was tabled, the Treasury did not provide a specific allocation to SAA, but allocated R13bn to the contingency reserve that it said could be allocated to state-owned enterprises (SOEs) where necessary.
Government officials said on Monday that public enterprises officials had written to finance minister Tito Mboweni to request funds from the contingency reserve.
The Treasury had asked that a number of conditions be put
in place.
The officials said they were confident the Treasury would make the allocation once parliament had spoken and it was legally possible.
SA banks have been wary of lending to SOEs for the past two years and have extended only short-term finance to both SAA and Eskom.
In the case of SAA, the repayment of the R3.5bn loan, which was raised in January and supposed to be repaid by March, will be regarded as a positive sign of commitment of government support for SAA.
Officials believe that once the R3.5bn government bailout
has been secured, the doors will open again to negotiate new loans as well as the debt rollover.
Sources said negotiations with an international lender to provide the R4bn were at an advanced stage.
The turnaround strategy drafted by Jarana after his appointment in November 2017 was approved by the department of public enterprises, and Jarana said in his resignation letter that he therefore had expected more support. It assumes that on the basis of a funding plan of R21.7bn, which includes the R16.7bn above as well as the R5bn SAA received in October 2018, that the airline would break even by 2021.
His resignation follows that of Eskom CEO Phakamani Hadebe two weeks ago, due to the "unimaginable" pressures of the job. Eskom also faces a liquidity crunch and is unable to service its debt from its revenue. It has asked the government to
take over its debt redemptions of R45bn for the year as well as to take over a portion of its R440bn debt.
In April, Mboweni invoked Section 16 of the Public Finance Management Act to secure emergency funds for Eskom.
A Treasury spokesperson said on Monday this could not be done again for SAA as it had already applied the maximum for the year to Eskom.
Parliament will reopen on June 20.
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