South African airways to go into business rescue

South Africa’s minister of Public enterprise, Pravin Ghordan, has declared the government’s resolve to “rescue” national carrier, South African Airways.

The move comes after a week of speculation on the airline’s future, which is loss-making and has been unable to raise funding to continue operations.

It is proposed that the government will give the airline an extra $137 million with a second tranche of the same amount to come from existing lenders.

The failing airline which has not made a profit since 2011, has lost more than $2 billion over the past 13 years and experience some internal turbulence last month, when staff went on strike over plans to cut a fifth of its workforce.

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“It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructure of the airline,” Pravin Gordhan says.

SAA, which has not made a profit since 2011 and has depended on government bailouts, suffered an employee strike last month, forcing it to cancel hundreds of flights and pushing it to the brink of collapse. 

Outlining what is expected from the process – described as the “optimal mechanism” to restore confidence in SAA as it seeks a future equity investor, Gordhan says the 2 billion rand provided by existing lenders will be guaranteed by the government and repayable in future budgets. 

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The government, via the national treasury, will provide another 2 billion rand in a “fiscally neutral manner” with the full recovery of capital and interest on existing debt not impacted by the rescue proceedings. 

In a business rescue process, a specialist administrator takes control of a company with the aim of rehabilitating it to improve its chance of survival, or securing a better return for creditors than they would receive from liquidation. 

“This initiative demonstrates that the government will undertake the necessary bold steps in order to reposition its assets in such a way that they do not continue to depend on the fiscus and thereby burden taxpayers” , Gordhan adds.

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