A draft business rescue plan for embattled national carrier South African Airways (SA, Johannesburg O.R. Tambo) would see the government spending ZAR2 billion rand (USD114 million) on the capitalisation of a new company and nearly ten times that on tying up the old airline.

A proposal by the business rescue practitioners (BRPs) Siviwe Dongwana and Les Matuson sent to the media by the opposition Democratic Alliance (DA) party on June 1, would see the state settle the airline’s commitments and establish a new entity (New HoldCo) owned by the Department of Public Enterprises (DPE). This entity would oversee low-cost subsidiary Mango Airlines (JE, Johannesburg O.R. Tambo), SAA Technical, and Air Chefs as well.

The state would have to spend ZAR16.4 billion (USD930 million) to pay SAA’s lenders, ZAR600 million (USD34 million) on current creditors, ZAR2 billion to settle retrenchments, and ZAR2 billion on the new entity.

The BRPs made it clear the plan was still a draft, with consultations still ongoing. They will submit their draft plan for comment by June 8. They said the coronavirus pandemic has impacted their work and was one of the reasons for multiple extensions being requested.

The DPE on June 1 said it had not discussed the draft plan yet and no decisions have been taken on some of the proposals it contains. “We will review the plan, explore various funding options, and communicate our decisions in due course,” the ministry said in a statement.

SAA was placed in business rescue in December 2019, and since then the BRPs have not yet come up with a firm rescue plan. Although they have advocated for either liquidation or winding down, the state has pushed for an alternative.

Alf Lees, Democratic Alliance member of the Standing Committee on Public Accounts, said on June 1 that the calls for a new airline follow a “spirited” political campaign by public enterprises minister Pravin Gordhan to discredit the business rescue process, and he urged for the liquidation of SAA instead.

“If this draft business rescue plan is approved in its current form, SAA will continue to be a fiscal black hole for years to come,” Lees said. “The BRPs are projecting that the ‘new SAA’ will trade at massive losses totalling ZAR19.9 billion [USD1.1 billion) for the first three years: Year 1 – ZAR8.1 billion [USD461] loss; Year 2 – ZAR7.5 billion [USD427 million] loss; and Year 3 – ZAR4.3 billion [USD245 million] loss.”

These losses exclude trading losses by Mango, SAA Technical, Air Chefs, and SAA subsidiaries.

On May 20, the DPE announced that the South African government had allocated ZAR3.8 billion rand (USD212 million) for SAA as well as ZAR164 million (USD9 million) for state-owned South African Express (XZ, Johannesburg O.R. Tambo).

More money has been set aside for SAA over the next five-year medium-term, amounting to a total of ZAR9.9 billion (USD542 million), including ZAR4.3 billion in 2021/22, and ZAR1.77 billion for 2022/23.

SAA has not turned a profit in a decade and has received government bailouts worth nearly ZAR20 billion (USD1.1 billion) in the last three years alone. The group’s accounts, as presented to parliament, revealed a pre-tax loss of ZAR5.09 billion (USD274 million) for the year ending March 31, 2019, on revenues of ZAR27 billion (USD1.48 billion).