The South African government on Friday approved the transfer of funds from the National Revenue Fund (NRF) to troubled national carrier South African Airways (SAA) to allow the airline to meet its debt obligations to Citibank and avoid a default. SAA has to meet its repayment obligations on a Citibank loan amounting to R6.8-billion in total by the end of September, as it also wrestles with the prospect of being unable to pay salaries because of a severe cash crunch.

CitiBank has also cancelled SAA’s R250-million short-term banking facility due to lack of government guarantee, leaving the airline without cash and desperately trying to find local bridging finance.

National Treasury said in a statement that 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.

Treasury said the funds would also be used to assist SAA with its immediate working capital requirements.

“This payment was done in terms of section 16 of the Public Finance Management Act (PFMA),” Treasury said.

“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.”

Treasury said the due process laid out in the legislation will be followed, adding that improving the financial positions of the airline through recapitalisation has been on government’s agenda for a while as outlined in the February Budget Speech.

According to Treasury, several options were being explored and an update would be provided during the Medium Term Budget Policy Statement next month.

Government has not ruled out selling its 39% stake in Telkom to bail out unprofitable SAA, while some reports suggested that Treasury was planning to introduce a special appropriations bill recommending a R10-billion appropriation to the airline in 2017-18.

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

“The appointment of a permanent chief executive officer for SAA, Vuyani Jarana, who will commence his role on 01 November 2017, marks a critical step in ensuring that the airline’s turnaround strategy is implemented.

“Further appointments to fill other critical executive positions will follow shortly. As communicated before, the airline remains a strategic asset and in its role as the flag carrier, it serves as an economic enabler with direct and indirect benefits across a wide range of economic activity.”

On Thursday, Democratic Alliance leader Mmusi Maimane said that National Treasury’s planned R10-billion bail-out for loss-making SAA would only provide short-term relief and the only solution was to place the national carrier under business rescue with a view to privatising it.

Maimane said the sum of bailouts extended to SAA since 1999 came to R14.4-billion, while the company’s losses in the past five years added up to R15.7-billion.