Treasury to ‘assist’ SAA

TREASURY has said it will
“assist” SAA in maintaining
liquidity after Citibank
cancelled a R250m loan
facility to the airline,
although it is not clear in
what way this assistance
will take place.
Treasury spokeswoman,
Phumza Macanda, told
TNW that Treasury was
working closely with SAA
on ensuring that there’s
sufficient liquidity at the
airline but would not
confirm whether this was
in the form of a guarantee.
SAA currently has an
application for a guarantee
under consideration, which
predates the Citibank
cancellation of its loan
facility.
The cancellation by
Citibank of the loan
facility could have dire
consequences for the
airline and could stand
in the way of SAA
re-establishing its going
concern, according to
economists.
Before the cancellation
of the facility, SAA was
already in a tight financial
spot. In November last
year, SAA’s head of Legal,
Risk and Compliance,
Ursula Fikelepi, pointed
out that SAA was
financially distressed and
trading under insolvent
circumstances.
Aviation consultant,
Joachim Vermooten, says
SAA will need to replace
the funding from Citibank
by turning to another
bank. To be able to do
this, the airline will need a
state guarantee. Another
option would be for the
government to extend a
direct loan to the airline.
“However, if the
government decides to
assist the airline further
by extending another
guarantee, SAA will have
no incentive to turn around
and move away from the
reckless trading it is
engaging at the moment,”
says Joachim.
Extending another
guarantee would also allow
SAA to compete unfairly in
the market space. Joachim
says that in Europe state
guarantees usually go hand
in hand with a curtailment
of the airline’s services to
make space for the private
sector and mitigate any
possible distortion the
guarantee has created.
However, if the
government should choose
to refuse another guarantee
to SAA, the airline is not
necessarily forced to close
its doors, says Joachim.
He says there are other
options available, such as
business rescue.
Ursula had already
suggested the option of
business rescue when she
submitted her legal advice
to the airline in November
last year.
“The decision by the
board to pass a resolution
for business rescue needs
to be done urgently to
enable a business rescue
practitioner to take control
for the purposes of having
a business rescue plan
approved and thereafter
implemented.
If the board decides
that there is no prospect
for business rescue, the
directors are obliged to file
for liquidation on an urgent
basis,” she said.
Joachim says it is unclear
why SAA has not applied for
business rescue yet, as the
directors have an obligation
to apply for it when they
find the company is
trading under insolvent
circumstances. If they fail
to do so, they could be held
personally liable for the
acquired losses.