In February, Finance Minister Tito Mboweni said South African Airways's (SAA's) business rescue practitioners had asked government for an additional R3.5-billion, which caused a bit of a stir. SAA's rescue practitioners, on the other hand, maintained that the money had already been allocated as part of the original business rescue plan.

So, has government been asked for an additional R3.5-billion or not? Fin24 decided to crunch the numbers for more clarity. 

It appears that SAA, in fact, requires a total of R19-billion for implementing its "larger rescue process" and an application has indeed been made to Treasury for further funding of R3.5-billion, SAA's shareholder, the Department of Public Enterprises (DPE) said on Friday. 

Following Mboweni's Budget Speech in February, he said during a media briefing that the airline's business rescue practitioners had requested additional funding of R3.5-billion. The rescue practitioners, however, said afterwards that the rescue plan accepted by creditors in July last year - totalling R10.3-billion - had always made provision for R3.5-billion thereof to be paid over a period of three years.

The DPE pointed out in its latest comments that, in the mid-term budget of October 2020, National Treasury only allocated R10.5-billion as urgent funding to implement SAA's rescue plan. Of the R19-billion the DPE estimated would be needed for the airline and its subsidiaries, it was hoped that R5.3-billion would come from a strategic equity partner.

Why is the extra money needed?

The main cause of what now seems to be a "gap" in the funding for SAA, is due to the DPE wanting R2.7-billion from the R10.5-billion given by Mboweni in last year's mini-budget to go to SAA's subsidiaries. This does not correspond with the terms of the R10.3-billion rescue plan voted on and accepted by creditors, which did not provide for such funding of the subsidiaries from that amount. 

In the view of the DPE, the business rescue plan does recognise the relationship between SAA and its subsidiaries and acknowledges that various intra-group transactions are required, both for the successful rescue of SAA and in order to sustain the financial viability of the subsidiaries.

"The creditors were, therefore, aware of the relationship between SAA and its subsidiaries and its impact on the success of the SAA business rescue plan that was approved. The application for funding through the Medium-term Expenditure Framework as well as through the adjusted Estimate of National Expenditure process was, therefore, informed by this requirement," states the DPE.

The department said it has submitted a request for the additional R3.5-billion and it is being considered by the National Treasury.  

The latest communication by the business rescue practitioners to creditors provides a glimpse of how the desire of the DPE to also fund subsidiaries of SAA became part of the bigger picture, adding to the R3.5-billion "gap".

Was the money part of the original rescue plan?

SAA's subsidiaries SAA Technical, Mango and AirChefs are not in business rescue and provision for their funding was not part of the official rescue plan approved by creditors in July last year. No further creditors' meetings or votes to change the plan have taken place since then.

In a letter dated 18 March, the rescue practitioners update creditors on the rescue process. The letter sets out that the R10.3-billion required by the business rescue plan adopted by creditors consist of:

• R2.2-billion for voluntary severance packages for employees;
• R2-billion working capital;
• R3-billion for un-flown tickets;
• R800-million for post commencement creditors;
• R600-million dividend to concurrent creditors (payable in three instalments from 2021); and
• R1.7-billion settlement with lessors of planes (payable in three instalments from 2021).   

Mboweni allocated R10.5-billion in his mid-term budget in October 2020 to SAA and nothing in his 2020 National Budget. The DPE and rescue practitioners indicated that the R10.5-billion was to implement the rescue plan and not to restructure a "new SAA". For that, the DPE is looking for a strategic equity partner.

Furthermore, the R10.5-billion allocated by Mboweni in the mini-budget does not include R16.4-billion of historic, government-guaranteed debt owed to four local banks. This had already been catered for in prior national budgets.

What was the original funding for?

The latest letter from the rescue practitioners to creditors further states that, when the DPE asked Treasury for R10.5-billion in funding of SAA as part of last year's mini-budget, it was for the following:

• R2.8-billion for voluntary severance packages and unpaid salaries;
• R800-million for post commencement creditors;
• R2.2-billion as part of un-flown ticket liabilities;
• R2-billion working capital to restart SAA (some of this is currently used for care and maintenance costs) after business rescue; and
• R2.7-billion for subsidiaries.

"It must be noted that the funding commitment of R10.5-billion as submitted by the DPE to National Treasury, did not cater for the full business rescue commitments," the rescue practitioners inform creditors. They say this is because some of the amounts committed to in the rescue plan, need only to be addressed in the future.

What will the 'extra' R3.5bn be spent on?

This relates to the R3.5-billion of the R10.3-billion stipulated in the plan and which will be needed over the next three years. The R3.5-billion comprises R1.7-billion for lessors of planes, R600-million for creditors and R1.2-billion as being the remaining part of the about R3-billion in un-flown ticket liabilities. The DPE expects that the un-flown ticket liability requirement will reduce going forward, as some of the passengers might opt for vouchers for their un-flown booked flights.

At this stage, the department, however, felt "the prudent decision was to fully provide for the liability" and therefore Treasury is being asked for R3.5-billion more.

The rescue practitioners intend to set up a so-called "receivership" to handle these future payments. The creditors need to now vote on a "receiver" who will be in charge. It will not be the current rescue practitioners as they are expected to exit the process soon. The receiver would, therefore, have to deal with the interim SAA board. It is unclear what will happen if there is no funding at the time the future payments become due.

To date, the rescue practitioners have received from the DPE R7.8-billion of the R10.5-billion provided in the mini-budget. The rescue practitioners did not receive funds for the recapitalisation of the subsidiaries and say they were advised by the DPE that the balance of funds would be made available for the subsidiaries "once certain government processes have been resolved".

The rescue practitioners further state that the settlement of unpaid salaries has been taken up and that it had paid to over 85% of eligible current and former employees.

What about the pilots?

The stalemate between the rescue practitioners and the members of the SAA Pilots' Association (SAAPA) still has not been resolved. SAAPA members have been locked out since 18 December 2020. During the lockout period, SAAPA members are not entitled to be paid any remuneration or benefits by SAA. 

"The Regulating Agreement, which is the collective agreement governing the relationship between SAA and SAAPA, prohibits SAA from making a number of operational and strategic commercial decision without the agreement of SAAPA," states the latest letter.

"It is for this reason the rescue practitioners believe a restructured airline can only be successful should it not be encumbered by the onerous provisions of the Regulating Agreement, hence the current lockout of and ongoing negotiations with SAAPA to have the Regulating Agreement terminated."

The rescue practitioners indicated that they are aiming to resolve the SAAPA issue in the best interest of SAA by 31 March.

"The negotiations to seek a full and final settlement with SAAPA are continuing notwithstanding the lock-out and to date there have been certain elements of settlement that have been agreed to in principle by SAA and SAAPA but the main contention is around the financial terms of the settlement," state the rescue practitioners.