Grounded: Business rescue practitioners intend to “explore viable investment opportunities with potential investors in respect of SAA” by looking into the sale of the airline’s assets and its subsidiaries. (Delwyn Verasamy/M&G)
With the government indicating that it no longer has the funds to support SAA —which has debts of R9.2-billion after receiving bailouts of R20-billion over the past three years — and with union attitudes to the carrier hardening, is business rescue an option?
This week, Minister of Public Enterprises Pravin Gordhan confirmed that there is no money available to loan or fund the troubled airline. He told parliamentarians on Wednesday that SAA might not even be able to pay salaries at the end of this month.
On Tuesday Gordhan had met unions, the South African Cabin Crew Association (Sacca) and the National Union of Metalworkers of South Africa (Numsa) to discuss general issues but declined to discuss wage demands, saying that this was a matter for the unions and SAA management.
On Wednesday, Air Chefs, SAA’s on-flight caterer, served SAA with a notice to join the striking workers.
In a media briefing on Thursday, union Solidarity said that it had filed court papers with SAA and the ministers of finance and public enterprises as respondents, asking the court to put SAA into business rescue.
Solidarity said last year it would bring an application for business rescue, but paused its application after negotiations and reaching an agreement, first with former SAA chief executive Vuyani Jarana and then with Gordhan.
Solidarity’s Dirk Hermann said the union is profoundly aware of the crisis SAA finds itself in, but business rescue is preferable because liquidation will have huge consequences for employees, the South African economy and for taxpayers.
“In all, 11 000 workers will lose their jobs and a debt burden of billions of rands will have to be absorbed by the treasury if there is no radical intervention. A business rescue application is the only remaining option to limit the damage,” he said.
But business rescue expert, Dawie van der Merwe, director of business restructuring at BDO, said putting the cash-strapped airline into business rescue will not save it.
“Always when I speak to people, I say business rescue is not a remedy for all ills. You have to know when it is the applicable tool and when it is not. And I’m of the view that business rescue is not the right tool for SAA,” he said.
Van der Merwe said business rescue is designed to be an in-between solution for businesses that are financially distressed, but he does not think it will work for an airline, and most certainly not for a state-owned airline, because there are “heaps of complexities”.
“Business rescue of airlines is notoriously difficult. I mean, think about it: are people going to buy a ticket on an airline that’s in business rescue?” he asked.
“Nobody’s going to do that,” he said, adding that any airline is only as good as the number of tickets it is selling.
He said that is why the current impasse at SAA is potentially so destructive for the airline. “I can guarantee you, nobody’s booking tickets now for the December holiday or maybe the Easter holiday next year or the international trip early next year; nobody’s booking because they do not know if SAA will be around,” he said.
Van der Merwe said when you place an airline into business rescue you have to accept that there may be no sales, and if you have no sales, you have no business.
He added that on top of potential low sales during a business rescue process, SAA’s large workforce will be a challenge for business practitioners to deal with.
“The airline has a big workforce and that problem doesn’t go away in business rescue: you still have your employees and they still need to be paid,” Van der Merwe said.
“Under business rescue, there will be a dramatic drop in your revenue … because people aren’t booking,” he said. “So you are, if you’re running at a loss at the moment, placing the airline into business rescue … is going to increase your deficit exponentially and who’s going to fund that?”
Van der Merwe said the government can either continue to bail SAA out or ground it permanently.
Aviation lawyer Chris Christo-doulou agreed with Van der Merwe, saying the underlying premise of putting a company into business rescue is that it must be capable of being rescued within a short period of time. The aim of business rescue is to give the company time to implement a turnaround plan.
“My opinion is in this case [is that] probably no amount of that short time will work and will avail the company of the remedies of a business rescue,” Christodoulou said.
He said the process needs a workable plan and the time to implement it. “In this case, I think time is not the problem: it’s the restructuring that’s required, [which] is more than just keeping creditors at bay for six months. So business rescue is probably not going to give the airline a turnaround or save it.”
Van der Merwe said that the lack of assets could be a problem because 99.9% of aviation companies and airlines don’t own their own aircraft. “So, you may even run the risk that institutions that financed the acquisition of some of the aircraft may simply want them back,” he said.
“It’s one of the sectors or industries that I don’t think is capable of a good business rescue. I’m happy to be proven wrong. But I think it’s a near impossible task. Even more so with the added complexity of it being the state-owned airline,” he said.
SAA has failed to table its financials on time for the second year running. Non-executive board member Martin Kingston told Parliament’s standing committee on public accounts earlier this month that SAA does not have access to liquidity and is technically insolvent, creating a major threat to the company and, more broadly, to the larger economy.
He added that the board has written letters to its shareholders — the treasury and the department of public enterprises — advising them of its situation and the risks involved.
Kingston said the department of public enterprises has confirmed its ongoing support of SAA, but the airline is yet to receive formal confirmation from the treasury as to whether the financial assistance it requires to continue trading will be forthcoming.
Kingston said SAA cannot secure additional loans from lenders without a full sovereign guarantee from the government. The cash-strapped airline could access a R2-billion loan from banks, but only if it obtains this guarantee.
Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian