The National Treasury last week announced it had agreed, in principle, to a substantial capital injection into the troubled South African Airways (SAA); however, it could not confirm the amount or timeline for the capital injection.

The National Treasury confirmed in the National Budget that, during 2017/18, government would provide some financial support for SAA “in a manner that does not increase the budget deficit” and supports a comprehensive turnaround strategy that aims to breathe new life into the lossmaking national airline.

“During the next few months, proposals for putting the capital structure of SAA on a sound footing will need to be agreed,” Finance Minister Pravin Gordhan said last week.

The introduction of a strategic equity partner and the potential merger of SAA and South African Express will be considered, as the carrier remains “technically insolvent”, saved only by government guarantees of R19.1-billion.

The confirmation that the parastatal “needed” a capital injection followed Gordhan’s successful engagement last week with SAA’s new board, the members of which were appointed in September, during which challenges were considered to be “well understood” and the advisory work that was in progress had clarified the way forward.

The National Treasury planned to provide an update on the certainty around the status of the capital injection, which would be dispersed in instalments, in October, as a deficit-neutral resolution is sought.

“I hope that this can be dealt with in the Adjustments Budget later this year,” Gordhan noted.

“SAA faces liquidity constraints in the short to medium term and government has been working closely with the board to address this, while working towards the long-term financial and commercial sustainability of the airline,” the National Treasury highlighted.

An advisory review of the State’s aviation assets will be completed by the end of March, while a number of actions required by the SAA board were receiving urgent attention, including the finalisation of the annual financial statements for 2013/14 and 2014/15, both of which were concluded before the end of September 2016.

SAA had narrowed its losses from R5.6-billion in 2014/15 to R1.5-billion in 2015/16 on the back of lower fuel prices and lower asset impairments.

In September, government also granted SAA an additional going-concern guarantee of R4.7-billion, bringing its total guarantees to R19.1-billion.

Some R3.5-billion of that guarantee has already bveen used, with the balance likely to be used in 2017/18.

Further, the board is finalising the recruitment process for a new CEO and CFO, with the recommendations set to be submitted to the National Treasury for consideration.