Mayday: SAA and government in debt guarantee deadlock

Troubled state-owned airline SAA (South African Airways) seems to be at loggerheads with the government, as the R16,4-billion rand debt sits at the centre of yet another dispute. For nearly a decade, SAA has been in the red, with the last profit posted in 2011. Has the problematic airline gobbled up its last government bailout? – Jarryd Neves

By Antony Sguazzin and Prinesha Naidoo

(Bloomberg) – The administrators of SAA (South African Airways), the state-owned airline that’s in bankruptcy protection, want the government to set aside R16,4-billion that it’s guaranteed to pay creditors.

The Treasury says the current structure of its guarantees should suffice.

The administrators want an agreement for the money to be paid into an escrow account — the last outstanding issue that needs to be resolved before the carrier’s business-rescue process can be finalized — to be signed on Monday, said the person, who spoke on condition of anonymity because the discussions aren’t public.

“The government guarantee provide the necessary legal comfort that should SAA not be in a position to settle maturing debt, then government will settle this debt,” the Treasury said in a response to queries. “The existing government guarantees are legal agreements between lenders and government and any amendments thereto will have to follow a due-diligence process.”

The disagreement is likely to further delay the implementation of a rescue plan for the airline and could scupper it, pushing the carrier into liquidation. SAA, which was established in 1934, hasn’t made a profit since 2011 and has been surviving on government bailouts.

Also read: Sunil Shah: SAA will be profitable when pigs fly.

A creditors’ meeting is likely to be held on July 30 to decide on a way forward if the government’s doesn’t agree to the condition.

Finance Minister Tito Mboweni has said it should be closed while Pravin Gordhan, the public enterprises minister, maintains that the country needs a national airline.

Mboweni has agreed to help raise funds for a reconfigured state airline, but stopped short of saying the government will provide the money.

The pledge to “mobilise” a further 10.3 billion rand to keep the airline flying has met another of the administrators’ requirements, the person said on Monday.

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