SA bails out insolvent state airline with $641 Million

South African Finance Minister Tito Mboweni allocated R10.5 billion ($641 million) for the grounded state-owned airline to implement its rescue plan, taking money from other government departments.

Mboweni made the announcement in Wednesday’s medium-term budget policy statement, ending a long personal resistance to funding further bailouts. The support adds to the R16.4 billion the Treasury set aside over three years in February for South African Airways to repay its guaranteed debt and cover debt-service costs.

The fate of the national carrier has become an emotive topic in South Africa as the country struggles to recover from the Covid-19 pandemic and revive an economy already in recession before the virus hit. Public Enterprises Minister Pravin Gordhan made saving the airline a priority, but Mboweni had always said extra cash would have to come from private investors. The money will be redirected from several national departments, with the biggest cuts to the allocations for police and tertiary education.

South Africa’s cabinet made the decision to fund the business-rescue plan and has not attached conditions, Treasury officials said in a lockup session before the budget presentation.

SAA was placed in administration in December, hasn’t made a profit in almost a decade and has long relyed on state support. Keeping it afloat is seen by opposition parties and some analysts as an expensive distraction for the government at a time when it needs to rescue the more crucial state power utility and reinvigorate economic growth.

State-owned companies continue to present significant risks in the form of contingent liabilities and direct requests for state support, the Treasury said in the budget statement.

Other companies highlighted as risks include:

• Airports Company of South Africa, which doesn’t have sufficient funds for its operational requirements.
• Eskom, which has used up R320 billion of its R350 billion in government debt guarantees. Financial support for the utility is reduced by R4.2 billion over the medium term.
• The Road Accident Fund is the government’s largest contingent liability and its accumulated deficit is seen growing to R593 billion by 2022-23.
• The Land Bank started paying overdue interest from August, after first defaulting on debt in April. It was allocated R3 billion in June and has approached the government for additional financial support.
• The South African National Roads Agency Ltd.’s revenue shortfall will cost the fiscus an additional R300 million in 2020-21.