The South African government is not just seeking strategic equity partners for South African Airways (SA, Johannesburg O.R. Tambo) but for its subsidiaries as well, including Mango Airlines (MNO, Johannesburg O.R. Tambo), according to a Bloomberg report quoting Public Enterprises Minister Pravin Gordhan.

The result would be a number of private-sector entities working with various parts of SAA whenever it resumed operations, Gordhan said. The government so far had received 31 expressions of interest in SAA and was currently whittling down the list, he added. “At the moment we are not actually looking to raise a specific amount from the strategic-equity partners but rather (are considering) the viability of their proposals,” he said in a telephone phone interview. “We will only discuss numbers in January.”

SAA has been in business rescue for a year. In July, 86% of creditors approved a restructuring plan committing the government to mobilise the necessary funds. However, on September 29, the airline’s cash flow was depleted, forcing the administrators to mothball all operations. Of the carrier’s 4,547 employees, a total of 3,246 applied for voluntary severance packages. In October, the government announced a ZAR10.5 billion rand (USD688.4 million) bailout from money re-allocated from other government departments and specifically stated for the implementation of the business rescue plan and the restructuring of SAA.

However, allocation of the ZAR10.5 billion revealed the government was going off-plan, with ZAR2.7 billion (USD177 million) suddenly earmarked for the recapitalisation of subsidiaries Mango, Air Chefs, and SAA Technical, entities that are not in business rescue and for which no cash-flow allowance was made in the restructuring plan.

With fed-up employees demonstrating outside SAA’s head office, the government last week advanced ZAR1.5 billion (USD98.3 million). However, the administrators said they could not disperse the funds because the government's stipulations on how it should be spent were in contravention of labour and commercial laws. It appeared the money had been stipulated for the subsidiaries, sources close to the process said.

Gordhan told Bloomberg the challenge being experienced was that Treasury was releasing the money in tranches. He said the labour issues would be “settled soon”.

However, it appears the issue could land up in court as the opposition Democratic Alliance (DA) was considering legal action to stop the advance. DA Shadow Minister of Finance Geordin Hill-Lewis in Parliament on December 4 said the money was paid to the administrators before the budget was passed and became law. “This shows gross disrespect for Parliament and disregard for the law. It is illegal and the DA is taking legal advice right now on whether it can be stopped,” he said.

Funding requirements as stipulated in SAA’s business rescue plan versus adjusted allocations are as follows:

  • ZAR800 million (USD52.4 million) for post-commencement creditors (general suppliers and employees);
  • ZAR2.8 billion (USD183.6 million) for restart capital (reduced to ZAR2 billion – USD131.1 million);
  • ZAR2.2 billion (USD144.2 million) for voluntary severance packages (increased to ZAR 2.8 billion – USD 183.6 million);
  • ZAR3.2 billion (USD209.8 million) for un-flown ticket liability (reduced to R2.2 billion – USD144.2 million);
  • a compromise of ZAR600 million (USD39.3 million) of ZAR8 billion (USD524.6 million) owed over three years to refund general concurrent creditors;
  • a compromise of ZAR1.7 billion (USD111.4 million) of ZAR30 billion (USD1.9 billion) in penalty claims owed to aircraft lessors (equivalent to six months rentals, net of letters of credits, and cash deposits);
  • ZAR16.4 billion (USD1 billion) over three years to repay secured lenders, of which ZAR10billion (USD 655.8 million) has been repaid, the remaining ZAR5.4 billion (USD354.1 million) repayable over the next two years.