Treasury has said it will assist SAA to maintain its liquidity after Citibank cancelled a R250m loan facility to the airline.
“Citibank has cancelled a loan facility for SAA and right now the Treasury is working closely with SAA on ensuring that there’s sufficient liquidity at the airline, Treasury spokeswoman Phumza Macanda told eTNW.
Macanda explains, however, that although there is currently an application for a guarantee by SAA under consideration, the guarantee application 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 itself as a going concern, according to economists.
Before the cancellation of the facility, SAA was already in a tight financial spot. In November last year, the airline’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, said that SAA would 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.
“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 in for the moment,” said Vermooten.
Extending another guarantee would further also allow SAA to compete unfairly in the market space. Vermooten explained that in Europe state guarantees usually went hand in hand with a curtailment of the airlines’ services to make space for the private sector and mitigate any possible distortion the guarantee had created.
If the government were to refuse SAA another guarantee, the airline would not necessarily be forced to close its doors, said Joachim. He explained there were other options available, such as business rescue.
Fikelepi 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.
Vermooten told eTNW it was unclear why SAA had not applied for business rescue yet, as the directors had an obligation to apply for business rescue when they found the company was trading under insolvent circumstances. If they fail to do so, they could be held personally liable for the acquired losses.
