/ 14 May 2020

‘SAA 2.0’: New deal provides a lifeline

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)

Jobs saved; retaining only 25 Airbus aircraft that will operate select domestic, regional and international routes; and a renewed interest from buyers in the United States. These factors are part of a new plan to keep state airline SAA from the anticipated crash-landing after its business-rescue practitioners [BRPs] relented and agreed to work with the government to save the entity.

South Africans have been in the brace position since last month, when joint business-rescue practitioners Les Matuson and Siviwe Dongwana revealed that the government had refused to advance a R10-billion lifeline for SAA’s restructuring and to mitigate the effects of Covid-19 travel bans.

This decision, they argued, meant SAA had run out of runway and was destined for a spectacular crash.

They were left with little choice but to offer SAA’s 4648 employees a severance agreement. The package included two weeks’ severance pay, notice pay, leave pay and a pro rata 13th cheque. This offer was dismissed by the unions and workers at SAA, most of whom argued that the airline and jobs could be saved.

But this week the rescue practitioners and the government’s shareholder representative, the department of public enterprises (DPE), reached an agreement that effectively puts the practitioners’ intended liquidation application on hold — at least until the end of June.

Critically, it includes a caveat that employees will receive salaries — albeit reduced on a sliding scale for employees earning more than R39000 — until the end of June.

By then, according to the one-page memorandum of understanding (MOU) signed by both BRPs and department of public enterprises acting director general Kgathatso Tlhakudi, parties would have agreed on elements of a business-rescue plan, which include saving jobs.

“During this period there will be no selling or sales of assets nor negotiations in this regard without consultation with and involvement of the department,” the document reads. “The objective of the business- rescue process for SAA is to have a restructured, efficient, and sustainable airline, whether in the form of a restructured SAA or a NewCo with no reliance on the fiscus.”

The parties also agreed that three workstreams would be established, namely:

l A finance workstream, which would look at available cash and the minimum costs of operations to be incurred and funded during the interim period;

l An assets workstream, which will conduct an audit of assets and decide which of them will be required for either a new or old airline; and

l A labour workstream that will find a middle ground between the section 189 process begun by the rescue practitioners and the compact reached by labour the department of public enterprises.

Until this week, parties involved in the crisis have been at war, with the department and labour representatives in a forum on one side, and the rescue practitioners on the other.

Relations were so bad that Department of Public Enterprises Minister Pravin Gordhan publicly hit out at the rescue practitioners for failing to come up with a solution since taking over in December, despite receiving R5.5-billion. He was also critical of the fact that SAA faced a R200-million fee exposure for the business rescue practitioners and a US consulting firm hired by them to help with restructuring.

The practitioners faced more pressure when the labour court issued an order interdicting them from proceeding with the retrenchment of 2200 employees, a case that has been ongoing at the Council for Conciliation, Mediation and Arbitration.

The matter had been filed by the South African Cabin Crew Association (Sacca) and the National Union of Metalworkers of South Africa (Numsa), who argued that retrenching workers before publishing a plan was procedurally unfair.

But the practitioners’ decision to appeal last week’s outcome — which the M&G understands has already seen SAA fork out R1.4-million to its legal representatives — could threaten the goodwill, with Sacca and Numsa labelling the decision as “outrageous”.

“We are of the view that this time government must take a stand to protect the public purse and join forces with labour in order to oppose the gross wastage of [the] BRPs,” their statement said.

Spokesperson for the rescue practitioners, Louise Brugman, said that the appeal was an in principle decision by the BRPs who felt the judge erred in his understanding of the Companies Act and had far reaching implication for the process of business rescue. She also said signing of the MOU was nothing new. “From the side of the BRPs, there has always been proper consultation and engagement with the DPE. There was a plan that was about to be presented, they were just disturbed by Covid-19 which changed everything,” she added.

Two insiders with direct know-ledge of discussions, but not permitted to speak publicly, said there had been renewed interest in SAA from private buyers in the US.

The M&G has been given a page marked “SAA 2.0 Proposal”, dated May 6, and titled “Current Fleet Optimisation”, which provides some details of what the fleet will look like. The plan is to retain only 25 Airbus aircraft — 10 A320-200s, five A330-300s, four A350-900s and six A340s.

Gordhan’s spokesperson, Sam Mkokeli, described the MOU as an important development “as it offers solid guidance to the rescue  process”. “The DPE is prepared to constructively work with all the stakeholders as part of a genuine effort to minimise job-losses, and create a financially viable national carrier out of this process.”