January 16, 2020 / 7:03 AM / 10 days ago

UPDATE 4-South Africa scours state coffers in bid to rescue SAA

* SAA entered bankruptcy protection in December

* Minister has “fingers crossed” that money can be found

* SAA one of several state firms with mounting debt woes

* Bigger battle to save state power firm Eskom looms (Adds SAA, rescue practitioners on aircraft tender)

By Alexander Winning

JOHANNESBURG, Jan 16 (Reuters) - South Africa is scrambling to secure extra funding to rescue South African Airways (SAA), which last month entered a form of bankruptcy protection in a last-ditch bid to save the state-owned company and around 10,000 related jobs.

Tito Mboweni, the country’s finance minister, told business leaders in Johannesburg ahead of the World Economic Forum annual meeting in Davos next week that the Treasury had provided “financial support to the best of our abilities”.

“As of yesterday when I was speaking to the director-general of National Treasury we were still trying to find additional financing for SAA. ... Let’s keep our fingers crossed,” he said.

SAA was promised 2 billion rand ($139 million) from the government and another 2 billion rand from lenders. But while the lenders paid up, the Treasury has yet to establish a mechanism for identifying and dispersing its share.

The airline is one of several state entities, including state power company Eskom, struggling with debt after nearly a decade of mismanagement.

Their woes are seen as the single greatest threat to Africa’s most industrialised economy and have been largely responsible for bringing South Africa’s credit rating to the brink of junk.

Fearing another downgrade if it raises its deficit, South Africa’s finance ministry has sought to fund SAA in a “fiscally neutral” manner, by selling assets or cutting costs elsewhere.

The airline has put up for sale nine of its Airbus A340-300 and A340-600 aircraft as well as 15 spare engines, a tender document seeking proposals from interested buyers seen by Reuters showed.

SAA said in a statement that the sale was to accommodate newer, recently received, Airbus A350-900 aircraft.

Joint business rescue practitioners Les Matuson and Siviwe Dongwana, who are overseeing SAA’s rescue effort, said any sale proceeds from the planes “would not fall within the 2 billion rand funding requirement that is being sought from government”.

TROUBLED TIMES

Stopping the rot at ailing state firms is seen as the biggest test of President Cyril Ramaphosa’s commitment to economic reforms.

“The pace of structural reforms is not the way we want it to be, so we need to speed it up to generate this impetus to economic growth,” Mboweni said.

But without cash, SAA could very quickly become insolvent.

A trade union official warned on Wednesday that SAA could be forced to suspend some flights and delay salary payments if the government does not pay up very soon.

The government’s treatment of SAA and whether it is willing to sacrifice jobs will send a signal ahead of a much bigger battle with unions over Eskom, which is struggling to keep the lights on.

Eskom’s chairman resigned last week after power cuts even during the low-demand holiday season. The company is also fighting the regulator in court over energy tariffs.

$1 = 14.4121 rand Writing by Tim Cocks; Editing by Alexander Smith; Kirsten Donovan

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