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SAA could receive a further $1.2bn from South African government

written by Dylan Nicholson | June 2, 2020

A new draft proposal has been announced by administrators overseeing the finances of South African Airways, which includes a US$1.2 billion bailout loan to help the airline overcome the effects of the coronavirus outbreak. The team was given 25 days to come up with the plan in May.

The proposal is just that, a request, and is not an official plan; only acting as an initial discussion. As the 25-day deadline approaches, the administrative team has come up with a final proposal.

In return for the loan, the government would start a new company controlled by the Department of Public Enterprises (DPE), and this company would assume all of the airline’s assets. The DPE would be responsible for all the financial costs of effectively setting up a new company and dealing with existing debt. The US$1.2 billion loan would cover these massive restructuring costs.

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In February, a US$950 million loan was approved by the government to pay creditors.

Over the past three years, the government has paid over US$1 billion to keep the airline in the skies.

The SAA fleet was grounded entirely in March due to the government closing borders and previously, the airline threatened to layoff all staff in an attempt to survive.

Rescuers are also now terminating leases on nearly half the airline’s 40 leased aircraft, while those on another 15 have been undergoing renegotiation.

The carrier had a fleet of 49 jets when it entered the business rescue process on 5 December last year, including nine A340-300s and -600s that it owned.

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Forty other aircraft were leased and a draft business plan – drawn up by the rescue practitioners, but disclosed by the South African political opposition party – details their status.

The plan shows among others termination of leases is being carried out on six Airbus A330-200s, three A340-300s, three A340-600s, and seven A319s. Some of these terminations have been concluded and the aircraft returned.

The draft plan states that, last year, only eight routes, one international and seven regional, were profitable.

SAA made losses of US$172 million on its international routes over the 2018-19 fiscal year, and nearly another US$69 million on regional and domestic services.

Eleven routes including the long-haul services to Hong Kong, Sao Paulo and Munich would still have remained “significantly loss-making” with “no option to optimise further”, the draft plan adds, even if costs were slashed by 25 per cent and revenues reduced by 10 per cent.

No details of the future route network for a restructured SAA feature in the draft plan, which is still being supplemented with information and remains subject to updates and consultation.

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