Budget 2021: Government settles R267m demand for SAA guaranteed letters of credit

A demand of R267 million for the troubled national airline’s government guaranteed letters of credit was made and settled in 2020/21.

This was disclosed in the Budget Review, which did not reveal any further allocation of funding for South African Airways (SAA), which was placed in voluntary business rescue in 2019.

The review reveals that government guarantees for SAA remained unchanged between 2019/20 and 2020/2021 at R19.1 billion but government’s exposure to SAA guarantees declined from R17.9 billion to R6.2 billion in the same period.

Government guarantee exposure includes the total amount of borrowing and adjustments to inflation-linked bonds as a result of inflation rate changes and accrued interest.

The review said the total amount for approved guarantees is expected to increase by R96.2 billion to R581 billion by the end of March 2021, with associated exposure estimated to decrease by R3.4 billion to R410.3 billion.

It said Eskom constitutes the largest exposure, at 77.2% of guarantees.

The stated purpose of SAA’s business rescue plan, as reported to parliament in November 2020, is “to create a value proposition within the restructured SAA which would make it an attractive proposition for a potential partner”.

In the 2020 Budget Review, R16.4 billion was set aside for SAA over the Medium Term Expenditure Framework (MTEF) period to settle legacy state-guaranteed debt and associated interest costs.

The latest Budget Review said that of this amount, R10.3 billion was allocated in 2020/21, with R4.3 billion allocated in 2021/22 and R1.8 billion in 2022/23.

However, the 2020 Medium Term Budget Policy Statement (MTBPS) included an allocation of R10.5 billion for SAA in 2020/21.

In addition, the business rescue plan was amended in September 2020 and the identified funding requirement was increased to R19.3 billion.

The 2021 Budget Review said that R14 billion of this amount was envisaged to come from government, including the R10.5 billion allocated in 2020/21, with the remainder sourced from strategic equity partnerships.

The Organisation Undoing Tax Abuse (Outa) said last week it had written to Public Enterprises Minister Pravin Gordhan and called on the government to pay SAA staff what is due to them and then close down the airline.

Julius Kleynhans, executive director of Outa’s public governance division, said that in their letter they called on Gordhan and SAA’s business rescue practitioners to:

• Pay employees the retrenchment packages that are due to them;
• Expeditiously settle SAA’s debt with its creditors according to the business rescue plan;
• Settle unpaid salaries;
• Retrench all remaining staff; and
• Close and wind-down all SAA’s activities.

“Our country cannot afford to lose more money on this failed state-owned entity. We therefore call on government to recognise the dire reality at the national carrier and conclude matters as a matter of urgency.

“This is in everybody’s interest, from taxpayers to staff,” Kleynhans said.

Kleynhans added that the current impasse on SAA’s future creates false hope and unfair expectations among SAA employees, who have not been paid their salaries since March 2020.

“Government should close this unfortunate chapter now and rather use public money earmarked for future SAA bailouts to the advantage of all South Africans,” he said.

The 2021 Budget Review stressed that well-governed and financially sustainable public entities play a vital role in national development.

However, it admitted that in recent years the combined results of financial mismanagement and corruption have led to a severe deterioration in the financial position of many public entities, leaving them unable to deliver on their mandates.

“A growing number have required state guarantees or bailouts to remain afloat – straining national budgets, draining resources that could be spent on social and economic needs, and setting back economic recovery.

“Over the past year, Covid-19 and associated lockdowns upended the plans of state-owned companies, curtailing revenue growth and collection of arrears, even as many operational costs remained inflexible.

“Higher borrowing costs – the result of the March 2020 downgrade of government debt, high levels of leverage and deteriorating financial performance – further limited access to capital. As a result, many state-owned companies are at risk of defaulting on their debts,” it said.

The review referred to the announcements in the 2021 State of the Nation Address that the mandates of all state-owned companies are being re-evaluated to ensure they are responsive to national development needs.

“Government intends to table overarching legislation for these companies in Cabinet during 2021/22,” it said.

This article first appeared on Moneyweb and was republished with permission.