Government will in the coming week sort out where to find the more than R10 billion needed for the restructuring of South African Airways (SAA) and start of the ‘new’ SAA, according to Public Enterprises Minister Pravin Gordhan.

Gordhan told Bloomberg that government’s commitment is clear, and that meetings in the coming week will resolve “the money issue”.

This comes after his department said in a statement on Friday that money will be reprioritised in Finance Minister Tito Mboweni’s adjustment budget next month and the hole will in the meantime be plugged with loans.

Whether Mboweni has agreed to any provisions in the adjustment budget is however unclear.

Treasury remains silent

National Treasury did not respond to questions in this regard and several commentators are convinced the public commitment was made without approval from Treasury.

Mboweni has in the past expressed his view that SAA should be closed.

A lack of support from Mboweni could result in a repeat of the events in February, when the SAA business rescue practitioners (BRPs) had to go back to the drawing board after Mboweni failed to allocate the expected funds in his main budget.

As a result, they were considering the winding down of SAA, but Gordhan started a parallel process with unions that was later incorporated in the business rescue plan and provides for generous retrenchment packages and the retention of only 1 000 of the current 4 600 staff members.

Rescue plan adopted in July

The plan was adopted by creditors in July and required more than R10 billion in funding for, among other things, the severance packages, payment of creditors and the start-up capital for the ‘new’ SAA.

Government committed to “mobilise” the funding, but this has not yet materialised, despite the best efforts of the BRPs.

At a creditors’ meeting on Friday, BRPs Siviwe Dongwana and Les Matuson said the airline has no money left and they are considering winding it down or applying for liquidation.

Dongwana told creditors they had received a letter from the Department of Public Enterprises right before the meeting repeating its commitment to provide the necessary funding. He said the BRPs would, in the coming week, engage with government on the timing of the promised funds.

The BRPs refused to make the letter public.

Moneyweb has however learnt that it was co-signed by Gordhan and Mboweni, but does not go as far as making commitments regarding the Medium-Term Budget Policy Statement (MTBPS) in late October.

Creditors to be advised ‘this week’

According to BRP spokesperson Louise Brugman SAA now needs money in the bank, and Dongwana and Matuson are currently considering the pros and cons of a wind-down or liquidation so they will be in a position to advise creditors this week should the funds not materialise.

However, the department in its statement on Friday stated emphatically that SAA will not be liquidated.

According to Bloomberg it is trying to get short-term loans from the Development Bank of Southern African (DBSA) and the Public Investment Corporation (PIC), which manages the investments of the Government Employees Pension Fund (GEPF).

The PIC has been under considerable scrutiny in the recent past for making dubious investment decisions and already has large exposure to struggling state-owned enterprises, further investments in which could result in a serious backlash.

The department has so far had no success in securing further loans for SAA’s rescue plan, and any bridging finance it succeeds in obtaining now could be extremely expensive.

Intellidex head of capital market research Peter Attard Montalto says the situation undermines investor confidence in government.

“Games continue but it is likely to have the increasing fallout of damaging sovereign credibility in the minds of investors, with one minister sending highly tactical press releases making commitments that National Treasury has not agreed to on the one hand and National Treasury silent on the other.

“Unfortunately, this [could] continue to the end of October as the BRPs will not call out such games,” he adds.

“Ultimately however the MTBPS process is hard enough as it is without trying to shoehorn SAA in as well, adding to the R250 billion of cuts that have to be found elsewhere.”

Interested parties, and politics

Gordhan seems to be pinning his further hopes of money flowing into SAA on the 20 parties that have allegedly submitted unsolicited bids for participation in SAA. According to his department, these include “private sector funders, private equity investors and partners for a future restructured SAA”, but no further detail has been provided.

Bloomberg reported earlier this month that Ethiopian airlines is in talks with government about support for SAA, including the possibility of taking a stake in the restructured airline.

In the meantime, the National Union of Metalworkers (Numsa) and the South African Cabin Crew Association (Sacca) are threatening to oppose efforts to liquidate SAA in court.

Political commentator Theo Venter says Gordhan’s apparent obsession with saving SAA stems from his communist belief in central control by the state. Mboweni on the other side is more free-market orientated.

Venter says Ramaphosa came to power in the ANC with the support of the Communist Party and needs it again in the upcoming municipal elections and for his own campaign for a second term at the helm of the ANC.

He believes Mboweni will eventually have to budge, but it will not be without compromise from Gordhan.