South African government trying to revive SAA by forming a new airline

May 18, 2020: South Africa's minister for public enterprises Pravin Gordhan is now in news for staking his own credibility and that of president Cyril Ramaphosa's government on the creation of a new airline out of the ashes of the bankrupt South African Airways.

Hit by the loss of the country's last investment-grade rating on its sovereign debt and the Covid-19 pandemic, Ramaphosa has said hard choices will need to be made as the country restructures its economy. What the state decides to do with South African Airways could be a litmus test for that resolve, according to Bloomberg.

SAA has not made a profit since 2011 and was surviving on state bailouts and government-guaranteed debt even before the coronavirus forced the grounding of almost all its planes. Gordhan and the team of business rescue experts currently running the airline have suggested a strategic investment partner could help restore the airline, but with carriers worldwide expected to burn through $61 billion (Dh224 billion) in the second quarter alone the list of potential buyers looks thin.

And while South Africa's National Treasury has found money for SAA in the past, the state's finances have been severely stretched by efforts to contain Covid-19. The economy is forecast to contract as much as 16 percent this year and lose as many as 7 million jobs, and Ramaphosa last month announced a 500 billion rand support package to contain the fallout.

SAA's board placed the airline in a local form of bankruptcy protection, known as business rescue, in December. The appointed administrators, led by Siviwe Dongwana and Les Matuson, were expected to propose a recovery plan to creditors by the end of February, but requested an extension due to delays to promised funding. A further postponement was granted after the coronavirus reached South Africa in March, and a final plan still has not been presented.

After a request for further government funding was refused last month, the administrators said the best option was an orderly winding down with severance packages offered to all staff. While the proposal was blocked in court after an appeal by labour groups, it remains the business-rescue team's preferred course of action, a spokeswoman said, declining to comment further.

Obstacles to Gordhan's plan, which has the backing of unions, include the lack of state funding. Finance minister Tito Mboweni has repeatedly made clear he's reluctant to put more money into SAA and said he isn't averse to the airline closing. Attracting an equity partner to invest in a perennially loss-making operation is also complicated by the government's desire to retain control and a law that limits foreign ownership to 25 per cent.