The South African Government has allocated over ZAR6 billion (USD412 million) rand in budgetary support to South African Airways and South African Express to help cover debt repayment obligations as well as for capitalization purposes.

In his Mid-term Budget Speech presented in Cape Town this week, Finance Minister Tito Mboweni announced SAA will receive ZAR5 billion (USD343 million) through a special appropriation bill to settle ZAR14.2 billion (USD970 million) of repayments due between now and March 2019. This will help to prevent a call on the airline’s outstanding debt of ZAR16.4 billion (USD1.11 billion), which is guaranteed by government.

SAA has a ZAR19.1 billion (USD1.31 billion) government guarantee of which ZAR14.5 billion (USD1 billion) has already been drawn down. As such, it has been undergoing restructuring in the interests of lowering its overall cost base while boosting efficiency and revenue streams.

"In the past year‚ almost all of the regional and domestic routes operated by South African Airways have become profitable. SAA will reduce and ultimately stop operating loss-making international routes. SAA procurement has unlocked annual cost savings of ZAR400 million (USD27.4 million). Despite these efforts‚ SAA is still loss-making and even more radical measures need to be undertaken. There should be no holy cows!", Mboweni said.

"To support a sustainable reconfiguration of our airline portfolio‚ in 2018/19 government will provide additional funding for SAA and South African Express Airways. Minister [of Public Enterprises, Pravin] Gordhan and I are working closely to limit the fiscal cost of these measures. By the end of the year‚ the boards of these two companies will present plans to strengthen and align their operations."

However, the Treasury said that in general, SAA is not generating sufficient cash to repay its total debt and will have to engage its lenders to either refinance or extend maturity dates.

Against this backdrop, Mboweni later told a parliamentary portfolio committee on Thursday, October 25, that it would be hard to find a private equity partner for South African Airways (SAA).

"I doubt you are going to find an equity partner who will come into SAA in this current state. As an equity partner you'd have to immediately assume debt of some ZAR21 billion (USD1.44 billion). Nobody has that kind of money," he was quoted by Reuters.

"I'm not suggesting that immediately we close it down, I am just saying let's think carefully," he added.

Insofar as South African Express is concerned, the Treasury has allocated ZAR1.249 billion (USD85.74 million) to the resurgent regional carrier. Fresh funding was a key requirement for the airline to regain its operating licences ahead of its resumption of commercial services in August.

According to the budget review, South Africa's state-owned enterprises have an overall debt burden of ZAR1.6 trillion (USD110 billion), of which ZAR670 billion (USD46 billion) is guaranteed by the government.

"In recent years, access to credit has steadily declined for many state-owned companies, mostly as a result of their weak balance sheets, poor corporate governance and liquidity challenges. These entities will find it difficult to refinance maturing debt as investors increasingly require guarantees before they will provide financing. As a result, government’s contingent liability exposure is likely to remain high," the Treasury statement added.