Media release: R 3bn SAA bailout – but only R 450 m left for working capital. Again taxpayers pick up the bill

02 October 2017
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One day before the default deadline on 30 September, government used R3bn of taxpayers hard earned money to bailout SAA - R I.8 billion to settle the foreign Citibank loan, the second lender to refuse to roll over its loan to SAA and to demonstrate no faith in government guarantees, leaving R 1.2 bn for “working capital”. Even if the working capital statement were true, which it is not, it will only save SAA for about one month. And what deal was done to roll over the other R 5 bn that was due on 30 September? SAA is an apartheid relic which serves no purpose in modern aviation other than as a political vanity project but it soaks up billions in taxpayer cash which should be used on housing, infrastructre, education and more. It is too late for privatisation. SAA should be wound down. 

SAA loses R 370 m every month, R 12.3 m every day. Theoretically the R 1.2 bn should tide the airline over til December.  However SAA currently owes existing suppliers R 750 m. So if SAA settles this, and no doubt suppliers will demand nothing less, this leaves R 450 m – 36 days - until SAA comes cap in hand to the taxpayer – again.

Media and commentators seem to have accepted that this “bailout”will enable SAA to continue and somehow get out of its financial black hole. Not so. This “bailout” is to cover historical debt generated by poor governance and bad management.

Treasury released a statement which included, “This payment was done in terms of section 16 of the Public Finance Management Act (PMFA). This section of legislation states that the Minister can authorise the use of funds to defray expenditure of an exceptional nature which is currently not provided for and which cannot‚ without serious prejudice to the public interest‚ be postponed to a future Parliamentary appropriation of funds”.

It can hardly be ‘expenditure of an exceptional nature’ when the expenditure and debt has been known to the Treasury for years.

And it can hardly be ‘in the public industry’ to continue to throw taxpayer’s hard earned money at subsidising the rich who fly rather than use it to support the poor who don’t.

And what about the other R5 bn loans for which Gigaba appears to have negotiated a stay of execution: how and on what terms? Higher interest rates and shorter duration? What penalty clauses have been agreed? They are unlikely to be in taxpayer’s interest. 

Also in Treasury’s statement:“A default by the airline on the R3-billion would have triggered a call on the guarantee exposure totaling R16.4- billion‚ leading to an outflow from the National Revenue Fund and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.” A statement by the Treasury DG in June this year said that, should the airline fail to meet it debt obligations, it would have ripple effects on the government’s entire guarantee framework. This stands at R434 bn. International  lenders in particular will see hightened risk to their loans and may call them in before the political appetite for bailouts wanes. There is also the very real threat of a further downgrade by ratings agencies.

The world has moved on. SA is at the bottom of Africa. It used to play a pivitol role in transporting the world into the continent especially under apartheid when SAA dominated. But competition from Middle Eastern airlines has smashed any hope of Johannesburg and SAA remaining as entry points. Advances in airline technology means aircraft can fly longer and are more fuel efficient.

The solution is to wind down SAA, let other airlines carry SAA’s passengers at no cost to the taxpayer and ultimately to stop wasting billions of taxpayers’ money.

Ends

 

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