Government has approved a R3 billion bailout for South African Airways (SAA) that will allow the airline to meet its debt obligations to Citibank, National Treasury said on Friday.

“Government has approved the transfer of funds from the National Revenue Fund (NRF) to SAA to allow the airline to address the debt obligations to Citibank, thereby avoiding a default. Funds will also be used to assist SAA with its immediate working capital requirements,” said Treasury.

In its statement, Treasury said the payment was done in terms of section 16 of the Public Finance Management Act.

This section of legislation states that the Minister can authorise the use of funds to defray expenditure of an exceptional nature, which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future Parliamentary appropriation of funds. The due process laid out in the legislation will be followed.

“A default by the airline on the R3 billion would have triggered a call on the guarantee exposure totalling R16.4 billion, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.”

A last resort

It had been reported that the national carrier, which falls within the ambit of National Treasury, had to pay back R1.8 billion owed to Citibank by 30 September 2017.

“Improving the financial position of the airline through recapitalisation has been on government’s agenda for a while, as outlined in the February 2017 Budget,” said Treasury, adding that several options are currently being explored.

An update on these options will be provided during the tabling of the Medium Term Budget Policy Statement on 25 October 2017.

“Given the nature of the problems at SAA, section 16 of the PFMA had to be used as the last resort,” said Treasury.