SAA rescue ‘least of worst options’



The government threw in the towel on Wednesday, acknowledging that it, as well as the SAA board and its executive management, were incapable of fixing the ailing airline. The job will be givento a business rescue practitioner to see what is salvageable, what can be sold and whether a reconstructed version of this money-eating machine can be turned into an enterprise that can pay its own way.

The decision to put the SAA group, which includes SAA Technical, Air Chefs and Mango, into business rescue was announced by Public Enterprises MinisterPravin Gordhanat 2am on Thursday.

Earlier, a letter from Cabinet secretary Cassius Lubisi to ministers and deputy ministers appeared on social media platforms.

In it President Cyril Ramaphosa directed Lubisi to inform the Cabinet that, after discussions with key stakeholders, including lenders, SAA would have to urgently go into voluntary business rescue. “This is the only viable route open to the government to avoid an uncontrolled implosion of the national airline. The voluntary business rescue approach will also prevent liquidation applications by any of SAA’s creditors, which would land the airline in an even worse position.”

This means the job, which neither the public enterprises department nor the SAA board and management has been able to achieve, will be given to a business rescue practitioner, who will have powers to effect drastic restructuring in an attempt to put the airline, or at least what is left of it, on a sound footing.

Gordhan said in the statement that a radical restructuring process at SAA was necessary to ensure its financial and operational sustainability and, in so doing, reduce its ongoing dragon the fiscus.

“Business rescue is a well-defined process that will allow SAA to continue operating on an orderly and safe manner and to keep planes and passengers flying under the direction of a business rescue practitioner,” he said.

It is understood that, given that the SAA board and management have not been able to implement their own turnaround strategies and the treasury has said that it will not make any further funds available, liquidation was imminent.

The business rescue route, assuming it can be made to work, is demonstrably more efficient.

Liquidation could have left SAA passengers stranded globally, and arrangements would have to be made for them to get to their destinations. This would also apply to several months of advance bookings.

The disruption arising from liquidation would also play havoc with the tourism industry and business travel in the country. One insider said that although there was the argument that other airlines would quickly move into this space and pick up the slack, the more likely scenario was that the gap would not be filled quickly or expeditiously. The dislocation, she said, “was too horrendous to contemplate”.

Workers rights are protected under business rescue but not under liquidation. So processes such as the section 189 retrenchment notice will continue under business rescue.

It is understood that the government sees SAA to be in too much of a mess to be touted to potential investors, such as other airlines, probably as a strategic equity partner.

“What is truly broken is difficult to sell,” the insider said.

The business rescue process, though, could well identify sales such as subsidiary Air Chef, which is already lined up for disposal, and budget airline Mango, which is well-functioning.

The ill-functioning SAA Technical, which often features front and centre of SAA’s deep-seated problems, could be merged in part with Denel, the state-owned aerospace and military technology group. Efficiencies here (presumably after finally cleansing it of corruption) could be the basis of a service company with both domestic and international airlines as its customers. A strategic equity partner is mooted as a possible shareholder in this reconfigured business.

Business rescue has the practitioner in the driving seat. Although there apparently is no depth of such practitioner expertise in South Africa, there having been only one such airline rescue case previously, the business rescue practitioner can source the required expertise internationally. The public enterprises department and SAA will make their restructuring plans available to the practitioner.

Trade union Solidarity has threatened in the past few weeks to put SAA into business rescue. The National Union of Metalworkers of South Africa, which is blamed by the public enterprises department for exacerbating SAA’s financial predicament through its eight-day strike, was likewise on Wednesday threatening to join the Solidarity application.

But it is understood that the government sees SAA going into voluntary business rescue as important.It has secured two tranches of treasury funding to keep the airline liquid during the business rescue process. This is in two lots of R2-billion.

The 2am press release says these funds will be attained in a “fiscally neutral” manner.

This means the funds have already been allocated by the treasury in the medium-term budget policy statement, but it was looking for an implementable plan from SAA before advancing the funds, in case this money was also going to be flushed down the drain.

Business rescue was the least worst of the various options, the insider said.

One issue is timing. The treasury funding lifeline will only last a short while, even with the work already done by the shareholder and airline. It understood from government sources that it is hoped that the business rescue practitioner can come up with a restructuring plan in a matter of just a couple of months.

Gordhan said that business rescue would provide for the full recovery of capital and interest on debt provided to SAA by existing lenders that is the subject of government guarantees.

The outcome for SAA, though, is by no means certain, nor assured.

Will insurers provide insurance to those who buy tickets and will travel agents resume booking? Liquidation could well be the next step.

Asked to comment, bookings agent Flight Centre referred to a statement it issued last week, before the business rescue announcement: “In light of developments and concerns regarding SAA, Flight Centre has made a decision to no longer sell SAA [tickets]until such a time as we have obtained certainty in the market.”

Intellidex’s Peter Attard Montalto said his view is that liquidation as the end point still stands — but the terms of the provision of R4-billion of state and bank money may provide an additional bridge over to the December month end at least.

“We still believe that credit conditions will tighten, however,” he said.

“The statement is couched in language that a state airline is needed to support tourism. We look through this, however, as window-dressing and an attempt to provide political cover.

“Overall the clear aim, rightly, is to retain as many sustainable jobs as possible. The statement also highlights that an investment partner is key.”

SAA said its board of directors and executive committee has been in consultations with the shareholder, the department of public enterprises, to find a solution to the airline’s well-documented financial problems.

“The considered and unanimous conclusion has been to place the company into business rescue in order to create a better return for the company’s creditors and shareholders, than would result from any other available solution,” SAA said.

“Furthermore, the company is seeking to minimise the destruction of value across its subsidiaries and provide the best prospects for selected activities within the group to continue operating successfully.” 

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Kevin Davie

Kevin Davie is M&G's business editor. A journalist for more than 30 years, he has worked in senior positions at most major titles in the country. Davie is a Nieman Fellow (1995-1996) and cyberspace innovator, having co-founded SA's first online-only news portal, Woza, and the first online stockbroking operation. He is a lecturer at Wits Journalism. In his spare time he can be found riding a bicycle, usually somewhere remote.

Related stories

Move to renewables already here

The electricity crisis has spurred the government on to use independent power producers to boost the grid

Cosatu suggests an Eskom solution

The union federation offers unprecedented concessions on job protections

Whatever happened to Ramaphoria?

“Overall it seems not only is Ramaphoria dead [it was never alive] but the long arc of reform potential is being lost in the discourse."

Women are fixing the planet

Female bosses at the IMF, ECB and EU are putting climate at the heart of policymaking

King Coal defies his energy plan

Gwede Mantashe needs to shift from costly, climate crisis-inducing fossil fuels to renewables

Is your cash fuelling the climate crisis?

The record of South Africa’s banks and its top 10 carbon emitters in disclosing steps to mitigate climate-related risks is poor

Subscribers only

SAA bailout raises more questions

As the government continues to grapple with the troubles facing the airline, it would do well to keep on eye on the impending Denel implosion

ANC’s rogue deployees revealed

Despite 6 300 ANC cadres working in government, the party’s integrity committee has done little to deal with its accused members

More top stories

Finance probe into the Ingonyama Trust Board goes ahead

The threat of legal action from ITB chairperson Jerome Ngwenya fails to halt forensic audit ordered by the land reform minister

Ailing Far East Rand hospital purchases ‘vanity’ furniture

Dr Zacharia Mathaba, who purchased the furniture, is a suspected overtime fraudster and was appointed as Gauteng hospital chief executive despite facing serious disciplinary charges

Eusebius McKaiser: Reject the dichotomy of political horrors

Senekal shows us that we must make a stand against the loud voice of the populist EFF and racist rightwingers

Seals abort pups in mass die-off

There are a number of factors — a pollutant, virus or bacteria or malnutrition — may have caused the 12 000 deaths on Namibia’s coast

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday