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Equity partner to be sought for State airlines as SAA gets another R10bn bail-out

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Equity partner to be sought for State airlines as SAA gets another R10bn bail-out

Photo by Duane Daws

25th October 2017

By: Terence Creamer
Creamer Media Editor

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Finance Minister Malusi Gigaba says government will pronounce on a plan to consolidate the State’s aviation assets and bring in a strategic equity partner after he meets with the new board of South African Airways (SAA), which was unveiled on October 19.

Delivering his maiden Medium-Term Budget Policy Statement in Parliament on Wednesday, Gigaba confirmed a further R10-billion bail-out for SAA and indicated that SA Express (SAX) was also facing liquidity pressure, which is likely to require some form of intervention from government in future.

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Additional appropriations of R13.7-billion were announced to forestall calls against guaranteed debt by the creditors of SAA and the South African Post Office, which would receive a R3.7-billion bail-out. “These have been partially offset by use of the contingency reserve,” Gigaba said.

However, he also announced that government was disposing of a portion of its Telkom shares to avoid a breach of the expenditure ceiling (a risk that had increased as a result of the bail-outs), with an option to buy them back at a later stage. Without the Telkom and possible other assets disposals, there was a risk that the expenditure ceiling would be breached to the tune of R3.9-billion this fiscal year.

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“We believe a strategic equity partner can play an important role in SAA’s turnaround, as well as unlocking value for the fiscus which has invested significantly in the airline over the years.”

Gigaba also confirmed that Cabinet had agree to the consolidation of SAA and SAX and to initiate a process to secure a private partner for the consolidated entity. That partner would be expected to inject both the capital and the expertise needed to turn the airline around.

Nevertheless, government remained convinced that it was still in the public interest to retain a national carrier. “It is in our national interest to have influence over our connectivity to all parts of the world, and not have to rely exclusively on the profit and scheduling considerations of global airlines.”

Gigaba argued, too, that SAA played a “priceless” role in marketing South Africa’s economy, tourism and culture. “So let us not ignore the contribution SAA is making to our nation’s development, even as we insist on dramatic improvements in its governance, strategy and operations.”

However, opposition parties have become increasingly sceptical of extending further support to SAA, with the Democratic Alliance suggesting that the airline be placed into business rescue.

“SAA’s fortunes will not change if we continue down the current tried, tested and failed path. For almost two decades, the airline has relied on government bailouts and guarantees for its survival,” the party’s Alf Lees argued recently.

Gigaba acknowledged that, as shareholder, government had grown tired of being dragged into crises by those employed to govern and manage state-owned companies (SOCs). “This must end.”

He added that governance failures, corruption, operational inefficiency and the need for government bail-outs had become a major fiscal risk to the country, owing to government guarantees of their debt.

The National Treasury would, therefore, be making proposals to make the government guarantee framework more stringent.

It was also imperative that government ensured that SOC boards were properly qualified, ethical and provided the requisite skill sets to ensure that the SOCs were soundly and profitably run.

“If board members do not exercise the leadership, good governance and financial management expected of them, government must act quickly and decisively.”

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