South Africa battles to save South African Airways on the brink of collapse with USD972 million bailout

South African Airways

South Africa will be making a hard choice to save South African Airways, its national flag carrier from the brink of imminent collapse.

To get this done, the government is already considering taking USD972 million from its government pension funds to save the airline.

Based on official documents released by the government, South African Airways, SAA, might in the next coming weeks go bankrupt and unable to pay staff salaries and key financial commitments.

Late yesterday, South Africa has appointed Vuyani Jarana, a former Vodacom executive in charge of the business to business unit at the country’s largest mobile carrier.

Confirming the appointment of Vuyani Jarana, Finance Minister Malusi Gigaba said in a statement that “Given that Mr. Jarana has turned around a loss-making subsidiary of the Vodacom Group, Vodacom Business Africa, into profitable and growth business, we believe he will be key in turning around South African Airways.”

As a group enterprise executive, he oversaw the implementation of enterprise strategy in all markets where Vodacom has presence. He is the Chairman of the boards of a number of subsidiary companies focused on the B2B market segment.

These include Vodacom Business Africa, Vodacom Business Nigeria, Xlink as well as Stortech. He is the director in the board of Vodacom South Africa and a member of Vodacom Capital Investment Review Board. Vuyani is also board member of Eastern Cape Rural Development Agency and the Chairman of The Nelson Mandela Museum Council. He was previously the Chief Operating Officer for Vodacom South Africa.

There is already resistance from investor community who see the failure of SAA as a sign of the larger picture. S&P has already downgraded South Africa’s sovereign credit rating to junk after President Jacob Zuma did a cabinet shake up that removed respected economist, Pravin Gordhan who was seen to be making progress in public spending and running of state-owned enterprises.

Analysts who spoke to said problem at the embattled airline might be more than what is known at the moment. It would be recalled that airline was given some bailout funds in July to offset some of its debt that were overdue for payments to its local lenders who were already cutting ties with SAA.

That the airline requires nearly USD1 billion to bring it back from collapse is a major concern for investors who are holding on to South Africa’s government bonds.

According to data compiled by Reuters, South Africa has about 300 state-owned companies. Most of them are not only inefficient but they are draining the resources of the government without declaring profits for years. Transnet and Eskom, two of the largest state companies have been in trouble with various financial irregularities cited in the books.

The country’s Finance Minister, Malusi Gigaba said: “We are in discussions about that and at the medium term budget statement in October I will make the necessary announcement.”

There is a turnaround strategy that will be implemented which has shown that there are “The overall findings of the financial modelling show that cash flows generated by SAA are not sufficient to cover the operations of the business.”

Gigaba saif the government will ensure the airline is redirected into a going concern: “We will deal with the remedial action proposed in those reports because they raise quite serious issues that need an urgent response from us.”

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