MIAMI – With funds from other government agencies to execute the rescue plan, South African Finance Minister Tito Mboweni allocated 10.5bn rand (US$641m) to the grounded state-owned South African Airways (SA).
Last month, the administrators in charge of the carrier suspended the airline’s operations until the government injected the funding it has promised. As such, SA put under “care and maintenance” until funding for the restructuring plan is found.
In Wednesday’s medium-term budget policy speech, Mboweni made the announcement of such funding, ending a long personal opposition to financing further bailouts. The help contributes to the Treasury’s 16.4bn rand set aside in February for SA over three years to repay its guaranteed debt and cover the cost of debt service.
As the country struggles to recover from the COVID-19 health crisis and revive an economy already in recession before the virus struck, the fate of the national carrier has become an emotive issue in South Africa.
No strings Attached
According to a report by bnnbloomberg.ca, Minister of Public Enterprises Pravin Gordhan had made it a priority to save the airline, but Mboweni had always said that private investors would have to provide additional cash.
The cabinet of South Africa made the decision to finance the business-rescue plan and did not attach conditions, Treasury officials said in a lockup session before the presentation of the budget. BNN Bloomberg best puts SA situation: the airline was put in administration in December, has not made a profit in nearly a decade, and has relied on state support for a long time.
Holding it alive is seen as a costly diversion for the government by opposition parties and some analysts at a time when it needs to save the most critical utility of state power and reinvigorate economic development. State-owned enterprises continue to present significant risks in the form of contingent liabilities and direct state support demands, the Treasury said in the budget statement.
Other Included Risks
- Airports Company of South Africa, which doesn’t have sufficient funds for its operational requirements.
- Eskom Holdings SOC Ltd., which has used up 320bn rand of its 350bn rand in government debt guarantees. Financial support for the utility is reduced by 4.2bn rand over the medium term.
- The Road Accident Fund is the government’s largest contingent liability and its accumulated deficit is seen growing to 593bn rand by 2022-23.
- The Land Bank started paying overdue interest from August, after first defaulting on debt in April. It was allocated 3bn rand in June and has approached the government for additional financial support.
- The South African National Roads Agency Ltd.’s revenue shortfall will cost the Treasury an additional 300m rand in 2020-21.
Featured image: Brandon Farris