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South Africa is looking to raise around $ 400 million from the sale of a stake in its bankrupt national airline, according to people familiar with the situation, a plan that will likely reduce the chances of finding a partner to help its revival.
The funds would be used to recapitalize the reformed South African Airways, said the people, who asked not to be identified because the information has not been made public. The government is confident SAA will attract interest because it has some lucrative routes and valuable landing sites, such as at London’s Heathrow airport, they said.
The Treasury referred the questions to the Department of Public Enterprises, which did not respond to requests for comment.
South Africa’s search for a capital buyer in SAA comes at a time when the aviation industry is mired in the biggest crisis in its history, having been crushed by the Covid-19 pandemic. Although Ethiopian Airlines Group has said it would consider a deal for SAA, CEO Tewolde GebreMariam has made it clear that he is not interested in investing capital.
Ethiopian is still interested in SAA “but the process is slow as it is complex,” the CEO said in response to inquiries last week. The department is in talks with Fairfax Africa about a stake in the airline, Financial Mail reports, without saying how it obtained the information.
Revival plan
SAA has been unprofitable for nearly a decade, survived thanks to state bailouts and government debt guarantees, and was put under administration a year ago. The carrier has been inactive since March, when the fleet was grounded due to travel bans to contain the coronavirus.
South African Finance Minister Tito Mboweni agreed in October to fund a revival plan that includes laying off nearly 80% of SAA’s workforce, a sum estimated by administrators at roughly R10.5 billion. The disbursement, yet to be delivered, is destined for SAA to fly again.
“Minds will not be gathered, as no other airline will want to invest money to subsidize SAA,” said Joachim Vermooten, an independent aviation analyst in South Africa when asked if SAA could attract direct funding. “The current plans show very clearly that it is not a viable proposition.”
The country’s largest banks are about to agree to provide about half of the initial amount needed, the people said. London-based Barclays may provide part of the balance in support of a government injection of about R2 billion, the people said.
Securing financing could ease pressure on the government, which faces a fiscal crisis if it fails to contain rising debt. The National Treasury had said that cash for the revival plan would be diverted from other state budgets, including health and education.
Representatives for the major South African lenders and Barclays declined to comment, as did SAA administrators.
– With the assistance of Samuel Gebre.
