/ 6 December 2019

Procrastination hasn’t helped SAA

Procrastination Hasn’t Helped Saa
Stop gap: Martin Kingston of Business for South Africa. (Paul Botes/M&G)




The SAA project has failed. Tens of billions of taxpayers’ rands have been thrown into a hole with little to show for the money. While business rescue practitioners try to resuscitate the corpse, there are crucial lessons to be learned. What happened at SAA is a striking example of the cost of corruption and mismanagement, mixed with political interference and inept management.

The call to send SAA into business rescue was rejected just last month by Martin Kingston, the head of the SAA board’s subcommittee on long-term turnaround, while talking to Parliament’s standing committee on public accounts.

“We have had extensive discussions with the shareholder [the department of public enterprises] about all options, including business rescue. Business rescue would have ramifications [for] existing agreements, including lease agreements … Business rescue is not an option available to the current board under the current circumstances,” he said.

As the Mail & Guardian understands it, Kingston said this because a fairly comprehensive restructuring plan had been developed between the airline’s board and its government shareholder representative.

So, how did we get here? And why did it happen so quickly after trade union Solidarity’s application for SAA to undergo business rescue?

It could be that, in the background, Kingston and his colleagues were trying to secure the R4-billion in funding that would allow them to enter into a business rescue process that does not end in whoever is appointed deciding on voluntary liquidation.

After all, that is the only material difference between last week’s application by Solidarity to have the airline placed under business rescue, and the decision late on Wednesday night to follow a similar path.

But, if that were the only consideration, why did it take so long? The R2-billion announced by the government this week had already been appropriated for SAA in the medium-term budget policy in October, and all the banks seemingly needed was a government guarantee and action akin to business rescue to agree on its R2-billion credit line.

This then seems like the government trying to maintain some control. The M&G understands that the state hopes that business rescue will keep SAA afloat, and stabilise it to a point at which it will be possible to attract an equity partner.

Part of this exercise will likely see whoever is appointed as the business rescue practitioner being offered SAA’s restructuring plan as a blueprint. This includes selling off Air Chefs, and moving SAA Technical to state arms company Denel.

But it cannot be a slow process — a lack of pace in making tough decisions has led to this crisis point. At its current rate of spending, SAA will burn through the R4-billion made available through the cash injection that was previously appropriated and announced and the bank loan will be gone soon.

Information in possession of the M&G suggests SAA that thinks it needs R2.1-billion to fund operations until February. This number is one of the reasons that the decision to go into business rescue was taken so suddenly. The airline also made a mistake in estimating its costs — tickets have been booked, and paid for, as far in advance as next June, and that money has been spent. But SAA still has to spend the money to fly the planes that it has sold tickets on.

Another reason behind the decision to go into business rescue is a series of poor decisions, including scaling back on profitable routes and paying consultants who have not turned the business around. For example, former chief financial officer Robert Head made R5.5-million in six months from SAA, but left without the airline any closer to resolving its audit queries. Millions of rands more were spent on executives working in former chief executive Vuyani Jarana’s office, despite their seeming to have had little impact on the company’s position.

There are also serious questions as to why the government kept injecting money into the airline without taking the tough decisions to fix it.

Does government hope the business rescue practitioner will make the tough and politically untenable decisions? An even worse prospect is that the practitioner rejects the entire plan.

The reality appears to be that any decision about SAA was politically untenable — with so much sunk into it and 9 000 jobs at stake. So any decision was deferred. Now it remains to be seen whether the move to business rescue is too late.

READ MORE: SAA rescue ‘least of worst options’