South African Airways will receive even more funding after the South African government signed its support on a business rescue plan for the airline today. As a result, the government will provide R10.1bn (USD$600m) to restructure the airline.
Government shells out to help SAA
Today, the South African government has shared that it will support its national carrier with additional financial assistance. South African Airways will receive over R10bn ($600m) from the government – its only stakeholder – to help the airline reemerge post-coronavirus.
The news comes off the back of a landslide victory from creditors on Tuesday. On July 14th, a business rescue plan was passed with a 86% approval rating. Being the only stakeholder in the airline, the government needed to sign its support to fund the rescue plan, which it has now done.
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The government’s signature shows its support to fund South African Airways’ recovery. According to a media release from the Department of Public Enterprises on Twitter today, the letter of support from the South African government shows,
“…[the] Cabinet’s endorsement of a business rescue plan for SAA and Cabinet’s position that “it supports the proposal for a new airline and the concerted effort to mobilize funding from various sources…”
The statement continues to say that the government is now committed to providing “funding for the short, medium, and long term requirements [of] a viable and sustainable national airline.”
DPE WELCOMES COMMITMENT TO SOURCE FUNDING AND SUPPORT NEW SAA pic.twitter.com/HdMfVXlSIW
— DPE_ZA (@DPE_ZA) July 16, 2020
How will government funding help?
The government’s funding will be used in four ways:
- To stabilize SAA’s balance sheet;
- To restructure the group’s entities;
- To provide capital for those entities; and
- To create a viable restructured airline.
Alongside this vision comes a plethora of changes to current SAA operations. The airline plans to re-enter service with just nine aircraft. Of those, only six will be in action, drastically scaling down the airline’s network and, at the same time, mitigating financial stress. For that to happen, South African Airways will sell a further 14 aircraft.
To date, it’s already shifted 17 aircraft out of its control, and once the others are removed, it will be left with:
- three A319s;
- four A320s;
- two A350-900s.
In addition, SAA will lay off some 2,700 employees. The remaining 40% of SAA’s workforce will be split between temporary layoff and routine operations. 1,000 employees will be placed on layoff for training, which will last for 12 months. Within that period, these employees will be offered positions within the restructured airline. If they take the offer, then their jobs will be safe. However, after one year, any unemployed staff will be dismissed.
A further 1,000 staff will join the airline from its relaunch through until February next year.
Opposition to the plan
Many things will change in SAA’s operation, and that does mean the loss of livelihood for some. Overall, however, the move to restructure the airline is a positive one. SAA has been in bankruptcy protection for over six months, since December 2019. Yet many do not think that additional funding in the airline will be worth it.
The Shadow Finance Minister for the opposition party, Democratic Alliance, Geordin Hill-Lewis has challenged the current Finance Minister to avoid additional bailouts for SAA. Mr. Hill-Lewis said that additional funding would waste public money.
What do you think? Will the SAA restructuring be worth it? Let us know your thoughts in the comments.