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South Africa surrenders control of state airline to try save it

SOUTH Africa's government is to waive control of the loss-making national airline and give it an additional bailout in a bid to stave off liquidation

South Africa surrenders control of state airline to try save it

SOUTH Africa's government is to waive control of the loss-making national airline and give it an additional bailout in a bid to stave off liquidation

09 December 2019 - 19:00

SOUTH Africa's government is to waive control of the loss-making national airline and give it an additional bailout in a bid to stave off liquidation.

South African Airways (S) will be placed under voluntary business rescue, a local form of bankruptcy protection in which a court-appointed administrator will take charge and try and turn it around. Once that process is underway, the government will give it a ZAR2 billion bailout (US$137 million) and provide guarantees to raise the same amount in new loans.



The process is fraught with risk, reports Bloomberg.



South Africa's powerful labour unions are expected to fight job cuts the airline needs to return to profit and creditors will likely be reluctant to agree to losses. The government is also facing demands from other beleaguered state companies for funding - stretching its already limited finances - and doesn't have the leeway to give the carrier more support if the restructuring fails.



'We do not see government coming up with a solution that definitively can work,' said Susan Booysen, director of research at the Johannesburg-based Mapungubwe Institute for Strategic Reflection. 'Asking for S to be placed on urgent business rescue is an instrument that kicks the can into somebody else's court and says: 'Now, you solve it.' I fear that government is throwing in the towel.'



The carrier has posted losses since 2012 as it grappled with the high operating costs of an aging, inefficient jet fleet and a bloated workforce - as well as high taxes, political interference and corruption scandals.



Business rescue 'is the optimal mechanism to restore confidence in S and to safeguard the good assets of S and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner,' Public Enterprises Minister Pravin Gordhan said in a statement.



Mr Gordhan said S's existing creditors will be repaid in full, the airline's cost structure will be reviewed and as many jobs as possible will be retained. S has more than 5,000 workers, while thousands more are employed by its associated companies and suppliers.



'This set of actions should provide confidence to customers of S to continue to use the airline because there will not be any unplanned stoppages of flights or cancellation of flights without proper notice should that be necessary,' Mr Gordhan said.


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