Hopes of the medium-term budget providing South African Airways (SAA) with the last monies due to creditors in terms of its business rescue plan were dashed by Finance of Finance Enoch Godongwana on Wednesday - and the Department of Public Enterprises (DPE) is not happy.

Godongwana announced that the final tranche of R16.4-billion, set out in the 2020 Budget Review for the 2020 medium-term expenditure framework, was repaid in July 2022. He said this "has eliminated government-guaranteed debt-related exposure to SAA". 

"Government financial support to repay debt and implement the business rescue plan has resulted in a significant improvement of SAA's balance sheet," stated Godongwana.

However, he was mum about money still needed in terms of a so-called receivership, created in March 2021 to allow for SAA to be regarded as solvent, not carrying significant debt on its books, and exit business rescue in April 2021. At the time of its creation, SAA's remaining debt of about R3.5-billion due in terms of its business rescue plan, was placed in this "special-purpose entity".

The receivership debt is due to concurrent creditors, lessors, and unflown ticket liabilities in terms of the approved business rescue plan. Payments in terms of the receivership were to be made over a three-year period. Two of three payments have already been made, and the last is due in August 2023.

The DPE, SAA's shareholder, announced more than a year ago that it chose the Takatso Consortium as a strategic equity partner to take a 51% stake in the airline and provide about R3-billion as a much-needed cash injection over two years.

Investment firm Harith and Global Airways, owner of the LIFT airline, are part of Takatso. The Public Investment Corporation (PIC) has a 30% stake in Harith, which owns infrastructure assets, including Lanseria airport.

Takatso has made it clear that it is not prepared to take on any of SAA's legacy debt. When asked about Godongwana's medium-term budget not providing any money for the receivership, Takatso referred News24 to the DPE.

The DPE responded to News24 on Thursday that government has agreed that the outstanding amount to fully implement SAA's business rescue plan is a legal obligation that it [government] has to fulfil.

"This matter will be attended to in due course. All the regulatory processes are currently being complied with and will be completed as soon as possible. However, the DPE is also aware of a number of efforts to derail [the Takatso] transaction by certain parties or entities that have ulterior motives," said the DPE.

"We must warn them that they are, as in the state capture period, once again undermining the sustainability of a vital resource and the lives of hundreds of employees who were overjoyed by the return to air of a legendary airline."

'GAP' IN FUNDING
The "gap" in funding was created when, in his medium-term budget of October 2020, then finance minister Tito Mboweni provided R10.5-billion for the complete implementation of SAA's business rescue plan. This was less than the R14-billion SAA's shareholder, the DPE had asked from Treasury. The DPE also wanted funding to help SAA's subsidiaries Mango, SAA Technical, and Air Chefs, which were not in business rescue at the time.

To still get money for the ailing subsidiaries, the DPE obtained permission from Parliament for a special allocation of R2.7-billion from the R10.5-billion Treasury provided for SAA's business rescue plan. This created a "gap" in funding to complete what was due to creditors regarding SAA's business rescue plan.

SAA's interim chair and acting CEO John Lamola told News24 earlier this year that the first tranche due in terms of the receivership was paid last year. He did not indicate how much this was. By the end of July this year, when the second tranche became due, SAA paid R550 million from its own money to creditors "to keep SAA afloat", he said.

The receivers confirmed to News24 on Thursday that the third and last tranche payment is due in August 2023. They did not indicate when and how much is still outstanding. It now remains to be seen if the rest of the money to finalise the receivership so that Takatso can come on board will be allocated by Treasury in the 2023 national budget in February next year.

SAA told News24 in September this year that government officials were working out exactly how much money the airline still needs from National Treasury to settle what is still due in terms of the receivership. Whatever amount they arrived at was certainly not reflected in Godongwana's medium-term budget as being for the receivership.

The receivers have indicated to News24 in the past that, in their view, if the funding needed by the receivership is not received, SAA's creditors and lenders could then take action against SAA itself for not adhering to what was agreed in the airline's business rescue plan.

SAA'S FUTURE
Lamola has been upbeat about SAA's chances of surviving even if the Takatso deal is "delayed indefinitely". He claims SAA is currently maintaining a positive cash flow and making "sufficient money" as it benefits from strong passenger demand following the demise of Comair. 

He said SAA is developing a plan to reposition it in the domestic and regional market as an airline that is not dependent on the fiscus - with or without a strategic equity partner.  

"We are already doing well with the small fleet we currently have. Our fleet strategy includes obtaining nine more planes by the first quarter of next year and building it up to a maximum of 25," said Lamola.

Aviation economist Joachim Vermooten explains that, with every new route SAA adds, it will need startup funding to enable it to operate that route until it becomes profitable.

"So, the ultimate financial needs of SAA depend on when it can break even and the number of new routes the airline attempts to add," says Vermooten.

His guess is that SAA could already be breaking even on its current smaller operations network.

"Other requirements for SAA to become sustainable would include choosing the right size aircraft with the right number of seats for the demand it can generate," says Vermooten.