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Regions

Citigroup cancels airline credit facility

January 12
3:53 AM 2016

Citigroup has cancelled credit facility to South African Airways (SAA). South Africa's National Treasury is exploring ways to ensure enough liquidity for the national airline. The bank may not restore the credit facility without any guarantee from the South African government.  The National Treasury will replace the interim board with a permanent entity soon. 

Citigroup on 24 December 2015, cancelled the short-term banking facility to South African Airways. The short-term credit facility was to the tune of Rand 250 million ($15million). The cancellation of credit facility puts more pressure on operational capability of the airline.  

Bloomberg reports that Phumza Macanda, the Pretoria-based ministry's spokeswoman, said over the phone that the National Treasury was working on an alternative plan to ensure the national airline has enough liquidity to continue operating. Johannesburg-based Moneyweb reported that Citigroup wouldn't reinstate the facility without a government guarantee.

The South African National Treasury is in the process of restructuring the interim board of South African Airways. The Treasury will replace interim board of three members with a permanent board. South African Airways witnessed changing of seven CEOs during the past three years.

Tlali Tlali, a spokesman at the Johannesburg-based airline, didn't provide details regarding the cancellation of credit facility by Citigroup.  South African Airways is in the process of getting the necessary approval from the government. Getting a guarantee will ease the burden on South African Airways and enable it to present financial results for 2014-15 year, as reported by BusinessDay.  

Recent reports spread in the market reveal that Dudu Myeni, Chiarwoman on the board, had made an attempt to clinch a deal with Airbus to save South African Airways. Had SAA clinched the deal, it would have saved Rand1.6 billion in pre-delivery payments for South African Airways. The deal would have also helped the SAA's bottom line to the tune of Rand 1.6billion. 

The Companies Act says that the board is required to file for business rescue and liquidation. Or else, creditors or staff may apply to court to place SAA under business rescue, according to a report by Fin24. If Myeni and the Council didn't take necessary measures to make the airline comply with Companies Act, it could have resulted in statutory sanctions and a possible fine or imprisonment again a person found guilty of an offence.

South African Airways had a talk with Airbus for leasing five new A330 aircraft instead of purchasing 10 new A320 aircraft. As per the earlier deal in 2009, South African Airways had to purchase 20 aircraft. 

Dudu Myeni had planned for a separate third party arrangement in form of an aircraft leasing company for executing funding and leasing activities. Under the newly appointed Finance Minister Pravin Gordhan, SAA met its December deadline from Airbus and concluded the swap deal of aircraft. 

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