South Africa plans to inject $400 million into its State airline

South African Airways (SAA) is expected to get government capital injection worth R5 billion ($400 million) that will help it meet urgent financial obligations. This was made known on Thursday by the Chief Executive Vuyani Jarana who told parliament in April that the firm needs an immediate capital injection.

While speaking in an interview with Reuters, Jarana said that “the Government has committed to inject another R5 billion into SAA. Part of that R5 billion will repay some of the creditors, suppliers, then the balance will support us for working capital until around October/November.”

Since 2011, the air carrier has not generated revenue despite receiving state guarantees of almost R20 billion  ($1.7 million). With a heavy debt on its neck, SAA has been reducing its fleet and its expected to cut 23% of its flights.

On December 24th, 2015, CitiBank canceled a R250 million short-term banking facility to SAA. In June 2017, Standard Chartered Bank called SAA out on its loan, which the South African government later provided R2.2 billion to settle.

The South African Treasury has asked the Public Investment Corporation, which controls government pension funds, for R100 billion to help bailout state-owned enterprises, including SAA. This funds will help pay debt and implement a turnaround plan that will revive the business.

On the expected capital injection, the Treasury noted that normal budgetary process which entails seeking cabinet approval would be taken. Adding that “The outcome of this process is expected to be finalized in time for the 2018 Medium Term Budget Policy Statement (MTBPS),” which is usually presented to parliament in October.

Responding to this, Jarana told Reuters that the company would negotiate for some breathing space with lenders,while waiting for the funds. “If Treasury needs a certain period of time to do this, lets say up to September, between now and then, we are negotiating with lenders to give us a bridging facility on the back of that commitment.”

National Treasury director-general Dondo Mogajane on Tuesday told parliament that the state carrier requires a $399 million (about Sh40 billion) cash injection in the current financial year to help it meet its financial obligations, but the cash injection could however not come from government. Mogajane noted that the treasury was willing to sell a stake in the airliner to a private equity partner to help cover its shortfall.