/ 10 March 2020

SAA’s choice: Restructure and cut 2 200 jobs or liquidate and lose 4 700

Southafricanairways Delwyn
Airline gets another chance as rescue practitioners and Gordhan agree to work on a rescue plan by the end of June (Delwyn Verasamy/M&G)

The cost of a decade of mismanagement at SAA has been laid open in its retrenchment notice sent to workers and unions. It notes that, in the past six years, the state-owned airline made cumulative losses of R26.1-billion. 

All 4 708 employees will be affected by the process, with the business rescue practitioners estimating that 2 268 employees will face the axe once the restructuring process is complete. This number excludes employees from SAA subsidiaries Mango, SAA Technical and Airchefs.

The airline’s biggest loss — R5.6-billion — occurred during the 2016/2017 financial year, under the controversial chairpersonship of Dudu Myeni. This is R4.1-billion more than was lost in the previous year. In 2017/2018 the airline lost a fraction less — R5.4-billion. The airline’s business rescue practitioners estimate that during the 2018/2019 financial year, the airline lost R5.3-billion. 

These details are in the section 189 notice sent by rescue practitioners Les Matuson and Siviwe Dongwana on Monday. It also cites increasing debt levels, volatile fuel prices, the weak rand, the airline’s aging fleet and insufficient cash to cover SAA’s costs. They added that the negative media coverage after the airline was placed under business rescue had a marked negative effect on SAA between November 2019 and January this year.

In the past six months the airline has limped from one crisis to another. November’s eight-day strike, led by the South African Cabin Crew Association (Sacca) and the National Union of Metalworkers of South Africa (Numsa), brought SAA to the brink of collapse. The airline estimated that it had lost R50-million every day its employees were on strike. During this time, companies withdrew insurance cover for SAA tickets. In December the airline entered in voluntary business rescue.

In January the Development Bank of South Africa provided a R3.5-billion loan to the company. This was on top of the R2-billion in post-commencement funding loaned to SAA by private creditors in December, shortly after it was placed under business rescue. A further R16.4-billion was set aside by the treasury, as announced during the budget speech in February. This lifeline is to be used to repay state-guaranteed debt and cover debt-service costs over the medium term. 

Despite the various tranches of financing over the past three months, SAA’s revenue dropped by R884-million compared with the same period last year. 

The section 189 notice states: “The overall result has been a decline of R1.3-billion in revenue with the cost base that has been more or less flat.”

The notice was issued to all employees and recognised unions. These include the South African Airways Pilots Association, the National Transport Movement, the NTM Management Forum, Sacca, the South African Transport and Allied Workers Union, Solidarity, the Aviation Union of South Africa and Numsa.

The notice says the current structure of SAA is not economically viable and, if it is not changed, the airline could be liquidated and all its employees could lose their jobs. 

“The current structure negatively affects the efficient operation of the business and, in turn, its profitability and sustainability.” This would involve “efficiencies”, a reduction in “loss making services”, a reduction in the number of aeroplanes from 48 to 19 and fewer routes.  

Consultations between employees and the rescue practitioners are set to begin on Thursday. But liquidation of the airline is unavoidable should the consultations take 60 days to conclude, as required by law, according to the rescue practitioners. “This is due to the fact that an agreement with labour is likely to be the prerequisites for the approval of any business rescue plan which is intended to avoid liquidation,” the notice read. 

The rescue plan is scheduled to be finalised on March 31, two months before the consultations with labour are due to be concluded. The rescue practitioners have therefore proposed that the consultations be concluded by 9 April to avoid SAA being liquidated.

“We must emphasise that no final decisions have yet been taken, nor will any final decisions be taken until we have exhausted consultation and hopefully reached agreement,” said the rescue practitioners.