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SAA to receive R10.5-billion government bailout after all

SAA will not be liquidated because the government has allocated funds to finance the airline’s business rescue plan. 

The airline’s rescue practitioners, Siviwe Dongwana and Les Matuson, had previously told creditors that the airline is facing liquidation should the R10.5-billion required to finance its business plan not materialise. 

But in the medium term budget policy statement (MTBPS) presented to parliament on Wednesday, Finance Minister Tito Mboweni said the SAA bailout would be financed by reducing the funds allocated to national departments and their entities as well as slashing provincial and local government conditional grants. 

SAA is also set to receive an additional R6.5-billion from the government that will go towards settling the airline’s guaranteed debt and interest. 

Mboweni defended the government’s move to fund the loss-making airline, saying that the bailout is in line with the “principle” that the funding for state-owned entities (SOEs) must come from the government’s own coffers. 

At least R10.1-billion is needed for paying more than 3 000 voluntary severance packages for employees, restarting commercial flights by January next year and reducing the airline’s fleet.

In line with the February budget allocations, the government gave the airline R9.3-billion in August towards paying the R16.4-billion it owed to creditors. 

The implementation of the rescue plan, which was adopted by creditors in July, has been plagued by delays because of uncertainty about how its funding requirements would be met. 

SAA aircraft have been grounded since March, when the first cases of Covid-19 in South Africa were reported. Repatriation flights began in April but in September the airline’s rescue practitioners suspended the repatriation flights and placed the airline under care and maintenance subject to the finalisation of the funding discussions. 

The SAA bailout comes against the backdrop of a contracting economy and significantly reduced revenue. The economy is expected to contract by 7.8% this year, rebounding to grow by 3.3% in 2021 and average a 2.1% growth over the medium term, according to the treasury’s latest estimates. 

The economic fallout of the pandemic has drastically reduced tax revenues and the treasury estimates that this year’s shortfall will be R312-billion lower than projected in the February budget. 

SOEs continue to drain the public purse

The continued pressure for the government to bail out struggling SOEs has placed further strain on the fiscus, In the MTBPS, the treasury identified expenditures on SOEs as one of three main risks to the short- to medium-term fiscal outlook. 

The recent downgrades by three major ratings agencies, Fitch, S&P Global and Moody’s, poor financial performance and the outbreak of Covid-19 has also  made it difficult for SOEs to access capital market funding. 

The government, as a major shareholder, is then often required to dig into its piggy bank in order to bail out its struggling entities. 

Despite the pressures that SOEs have on the weakened fiscus, the government will continue to allocate funds to them over the next year. 

Eskom

Eskom, which is facing a R450-billion debt burden, will receive R23-billion this year.  According to the MTBPS supporting documents, Eskom received R49-billion of its equity allocation by 31 March 2019. It used R320-billion of its R350-billion guarantee, with an additional R7-billion committed, leaving R23-billion available on the existing facility by 30 June 2020. By 30 September 2020, R6-billion of the R56-billion equity allocation for this year had been provided to Eskom. 

In line with president Cyril Ramaphosa’s economic recovery and reconstruction plan, which recognises the need to allocate digital spectrum, the Independent Communications Authority of South Africa has been allocated R84.7-million for the licensing of high-demand spectrum.

Other struggling SEOs identified in the MTBPS include the Airports Company South Africa, whose financial performance has been battered by the pandemic and the drastic decrease in air travel. 

The Land Bank has approached the government for additional funding after this year’s  ratings downgrade resulted in the entity experiencing a liquidity shortfall, leaving investors unable to refinance its debt. The Bank will require an additional R7-billion over the medium term to support its restructuring, Mboweni said. 

RAF

The Road Accident Fund has been a serial underperformer over the past few years. The government forecasts the RAF’s deficit to R593-billion by 2023, making it one of the government’s biggest contingent liabilities (commitments that may result in financial obligations if specific events occur).

Sanral

The South African National Roads Agency Limited (Sanral) is also between a rock and a hard place as it doesn’t have enough funds to finance its large toll portfolio. This partly because of its failure to collect tolls from the stagnant Gauteng Freeway Improvement Project (e-tolls). Over the past seven years, Sanral has incurred annual average losses of R2.5-billion. By March this year, the entity had already used R39-billion of its total government guarantee of R37.9-billion.

To offset the massive expenditure, the government aims to make savings of R36.5-billion by freezing public employee salaries and reprioritising funds of national, provincial and local governments. The government also plans to increase its tax revenue by 

R5-billion in 2021-22, R10-billion in 2022-23, R10-billion in 2023-24 and R15-billion in 2024-25.

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