Minister stakes his reputation and South Africa’s on airline

Bloomberg

Pravin Gordhan, South Africa’s minister for public enterprises, is staking his own credibility and that of President Cyril Ramaphosa’s government on the creation of a new airline out of the ashes of the bankrupt national carrier.
Hit by the loss of the country’s last investment-grade rating on its sovereign debt and the Covid-19 pandemic, Ramaphosa has said hard choices will need to be made as the country restructures its economy. What the state decides to do with South African Airways (SAA) could be a litmus test for that resolve.
SAA hasn’t made a profit since 2011 and was surviving on state bailouts and government-guaranteed debt even before the coronavirus forced the grounding of almost all its planes. Both Gordhan and the team of business-rescue experts currently running the airline have suggested a strategic investment partner could help restore the airline, but with carriers worldwide expected to burn through $61 billion in the second quarter alone the list of potential buyers looks thin.
And while South Africa’s National Treasury has found money for SAA in the past, the state’s finances have been severely stretched by efforts to contain Covid-19. The economy is forecast to contract as much as 16% this year and lose as many as 7 million jobs, and Ramaphosa last month announced a $27 billion support package to contain the fallout.
“We’ve got our backs totally against the wall,” Cas Coovadia, chief executive officer of Business Unity South Africa, said.
With regard to Gordhan, “we have the greatest respect for him, we just can’t see, given the facts of the matter, how SAA can be saved,” he said.
SAA’s board placed the airline in a local form of bankruptcy protection, known as business rescue, in December. The appointed administrators, led by Siviwe Dongwana and Les Matuson, were expected to propose a recovery plan to creditors by the end of February, but requested an extension due to delays to promised funding. A further postponement was granted after the coronavirus reached South Africa in March, and a final plan still hasn’t been presented.
After a request for further government funding was refused last month, the administrators said the best option was a winding down with severance packages offered to all staff.