The Treasury said its much criticised decision to raid education and police budgets to fund SAA was necessary to meet financial obligations, and would help find private investors and wean the airline off state aid.
Deputy finance minister David Masondo told Tim Modise on Business Day TV’s Political Currency show on Wednesday night that the R10.5bn was not a bailout, while Treasury director-general Dondo Mogajane said in an interview with Bloomberg that up to five potential equity partners were waiting on the conclusion of its business rescue. He did not name them.
Finance minister Tito Mboweni’s decision to allocate money to an airline that has not made profit since 2011 and was surviving on government bailouts even before the Covid-19 outbreak, threatens the credibility of the medium-term budget policy statement, with its commitment to cut debt and prioritise growth-enhancing spending.
Concern in the market is that with SAA expected to remain loss-making once flights resume, this will not be the last time that the Treasury is asked to fund it. This comes as investors are openly talking about the chances of a debt default by SA in coming years. The pledge to find an equity partner has also been met with scepticism with the Covid-19 crisis having floored even previously successful airlines, which are now struggling for survival instead of looking for expansion opportunities.
Treasury’s defence of the latest bailout came even as comments by Mboweni and Masondo emphasised that the decision was a collective one in cabinet, making it clear that the Treasury had lost the political battle over the airline’s future. Mboweni previously advocated closing the airline and said he would not put his own money in it.
SAA entered business rescue — a form of bankruptcy protection — in December 2019, and the business rescue plan was approved by creditors in mid-July. This, however, requires an injection to settle outstanding obligations and restart operations.
Masondo said the money, coming on top of R16.4bn in the February budget, was needed to meet obligations, including to workers facing retrenchment and customers who already paid for flights.
“Part of the R10bn is to make sure that we don’t violate the contracts or obligations to people that we owe,” said Masondo. “Once we are done with that, we need to say what type of an SAA are we going to have post restructuring, and there are talks now that we need to have an equity partner, so that when we have restructured SAA, SAA will not depend on the fiscus for its operations.”
The diversion of additional state funds towards SAA was probably the most negative element of the medium-term budget policy statement, BNP Paribas economist Jeff Schultz said on Thursday. The government needed to provide more details on the progress to secure an equity partner if it is to avoid a further loss of credibility, he added.
“It is difficult to argue that SAA has become anything more than a national vanity project and it will be difficult to convince markets that this isn’t just throwing the tiny pile of good money after the floods of bad,” he said in a research note.
The signal the bailout sent out was more negative than the actual economic effect, he said. “This was possibly the easiest SOE to cut loose, and yet the cabinet fought tooth and nail to force the National Treasury to fund it.”
Public enterprises minister Pravin Gordhan, who championed SAA’s bailout, accused critics of financial illiteracy and manipulating facts to “fabricate false ideas about SAA”. With Bloomberg
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