State bails out SAA to the tune of R5bn

SA Airways has been given a R5 billion guarantee by government, the National Treasury said on Tuesday.

“The South African government has granted SA Airways a R5 billion guarantee for a period of two years starting from 1

September 2012,” Treasury said in a statement.

SAA had requested recapitalisation, at an estimated cost of between R4 billion and R6 billion.

This would enable the airline to strengthen its balance sheet and order new planes.

“The guarantee will enable SAA to borrow from the financial markets, thus ensuring that the airline continues to operate as a going concern,” Treasury said.

In terms of the guarantee, the SAA board had to develop a turnaround strategy, to be approved by the Minister of Public Enterprises Malusi Gigaba and the Minister of Finance Pravin Gordhan.

SAA had to provide the department of public enterprises (DPE) and Gordhan with its financing strategy for its planned purchase of a short and long haul fleet.

A technical committee including representatives from Treasury and the DPE would monitors SAA's financial position and how it was implementing its turnaround strategy.

Last week, chairwoman Cheryl Carolus and six other members of the SAA board resigned.

Carolus was quoted as saying: “The board has just become untenable, our reputation and professional integrity had just been dragged through the mud without any clarification or support, and I believe this had reached a point where the relationship has been broken irretrievably.”

In 2004, a hedging loss of R6 billion wiped out the company's capital base, and in 2008, soaring oil prices led to another R1

billion hedging loss. - Sapa