New airline may rise from ashes

With SAA downed by debt and revenue loss, the discussion has moved on to finding about R2.2-billion for severance packages — and possibly a new airline emerging from the state-owned airline’s ashes.

Airlines around the world have been hit hard by travel restrictions put in place to contain the spread of Covid-19. SAA’s planes have been grounded since March 27, with the exception of cargo and repatriation flights in and out of the country, and with no revenue is struggling to meeting its financial obligations.

The pandemic could not have come at a worse time for the airline, which was placed under business rescue in December.

The scramble this week is to find a strategic equity partner.

Two sources, who are independent of each other and have direct knowledge of the negotiations, said Germany’s Lufthansa has been touted as one of the potential partners. The United Kingdom’s Virgin Atanlic is another name that is doing the rounds.

But this option seems unlikely, given the crisis in the aviation industry worldwide.

The Financial Times reported this week that Lufthansa is in serious trouble, and has been asking European governments for financial support. Up to 10000 people face losing their jobs as the airline shrinks to survive. One of the German airline’s subsidiaries, AUA, has also asked the government in Austria, where it operates, for financial assistance.

Lufthansa Technik, the German airline’s maintenance and repair operation, recently set up shop in South Africa and poached one of

SAA Technical’s clients, Comair, which operates British Airways and Kulula.

The Guardian reported that Virgin Atlantic, is 51% owned by Richard Branson’s Virgin Group, is hunting for investors. Delta Air Lines owns owns 49%, but it is facing its own “cash crisis”.

British Airways is looking to lay off 12000 of its 42000 workforce as it cuts the size of the airline in the face of reduced travel, a situation that could last for years, Business Day reported.

These airlines entered the Covid-19 world in a far better position than SAA, which has had years of mismanagement and corruption, resulting in it hemorrhaging money.

After months of back-and-forth discussions, the first indications that SAA’s wings would be clipped soon came through Finance Minister Tito Mboweni, when he told reporters during a briefing last week that a new airline would be built from the “ashes of SAA” as part of the country’s “new economy” post-coronavirus.

This future was largely guaranteed earlier this month, when the government refused to provide R10-billion to the airline’s business rescue process. Public Enterprises Minister Pravin Gordhan said the immediate needs of curbing the coronavirus pandemic meant the government’s coffers are constrained and that no further funding would be extended for the airline’s business rescue process.

Prior to the pandemic, Gordhan has been on the record numerous times saying that SAA was in need of a strategic equity partner because it could no longer be sustained through government bailouts.

His department, and the government, have however been consistent in intervening in the business rescue process to extend the existence of the airline.

The National Union of Metalworkers and the South African Cabin Crew Association have vowed to continue with their court application to save jobs should the next 48 hours not bear positive fruit for SAA employees. They called on staff members not to sign retrenchment agreements.

The National Transport Movement said it will work towards ensuring that SAA employees are first in line for jobs at the new airline when it is established.

Two options emerged from Wednesday’s talks, including a R2.2-billion severance package for employees in line with the provisions of the Basic Conditions of Employment Act. Under this package workers will get one week’s severance pay, notice pay, leave pay and a pro rata 13th cheque. The second option offered to workers amounts to about R3.1-billion where workers will get two weeks severance pay, notice pay, leave pay and a pro rata 13th cheque.

The National Transport Movement has told its members not to sign the agreement until the lapsing of the section 189 process on May 8.

In a proposed settlement agreement, SAA’s business rescue practitioners have said the severance packages and the airline’s other financial obligations would be met through the sale of its assets.

This list includes property such as SAA’s headquarters at Airways Park, the airline’s cargo office, as well as rotables (parts that can be overhauled and reused), which include landing gear engines, electronic centralised aircraft monitors, digital flight data recorders and auxiliary power units. These sales could all be realised in six to 12 months.

The rescue practitioners have also said they would look at selling SAA’s trade debts, which could be collected in six to 12 months depending on the financial position of the debtors.

Although the rescue practitioners have not put a figure to the value of the assets, a source close to processes at the airline that the figure of R2.2-billion was thrown around. This amount may change as SAA scrambles to find buyers for its assets.

Louise Brugman, spokesperson for the rescue practitioners, would only say: “Nothing has changed in the business rescue process except for the fact that there has been an extension granted for unions to consider their rights to May 1 at 5pm.”

The decision to close SAA comes as another state-owned airline, SA Express, was placed under provisional liquidation earlier this week. The airline had experienced months of financial difficulties and its rescue practitioners were unable to pay March and April salaries.

SA Express was placed under business rescue last month after years of mismanagement and corruption. The government had given the airline more than R1.2-billion in bailouts during the previous financial year, including an additional R300-million, which was disbursed in October.