The Treasury has reached out to SAA to help the airline maintain its liquidity after Citibank cancelled a R250 million (€13 million) 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 Tourism Update.

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 its going concern, according to economists.

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Before the cancellation of the facility, SAA already found itself in a tight financial spot. In November last year, SAA’s head of Legal, Risk and Compliance, Ursula Fikelepi, pointed out that SAA is financially distressed and trading under insolvent circumstances.

Aviation consultant Joachim Vermooten said that SAA will 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.

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.

According to Vermooten, 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.

Extending another guarantee would further also allow SAA to compete unfairly in the market space. Vermooten explains that in Europe state guarantees usually go hand in hand with a curtailment of the airlines’ services to make space for the private sector and mitigate any possible distortion the guarantee has created.

If the government would choose to refuse SAA another guarantee, the airline is not necessarily forced to close its doors, says Vermooten. He explains there are other options available, such as Business Rescue.

Fikelepi already suggested the option of Business Rescue when she submitted her legal advice to the airline in November last year. She said: “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.”

Vermooten told Tourism Update it is unclear why SAA has not applied for Business Rescue yet, as the directors have an obligation to apply for Business Rescue when they find the company is trading under insolvent circumstances. If they fail to do so, they could be held personally liable for the acquired losses.