The SAA stalemate between its business-rescue practitioners (BRPs) and its government shareholder representative, the department of public enterprises, is headed towards a bunfight over its assets. These include nine aircraft, land in eight South African cities, divisions such as SAA Voyager and SAA Lounges, and subsidiaries, as well as the SAA brand and intellectual property.
There is growing concern inside the department that the intended move by business-rescue practitioners Les Matuson and Siviwe Dongwana — winding down the company by terminating all staff contracts and selling off its assets to fund severance packages and pay creditors — will affect the formation of a new airline.
An internal public enterprises document seen by the Mail & Guardian, which details discussions on the way forward for SAA and evaluating the business-rescue process, shows a more than casual concern about the process. “The path that the BRPs are on is posing a risk to the realisation of Newco [the new airline]. The BRPs are empowered to sell the assets and the brand, for instance, could be sold to the competition.” This, it warns, could happen “without giving the shareholder an opportunity to extract assets required”.
It adds: “The government should express an interest [in] the assets and there needs to be a constructive engagement with the BRPs that there is a plan that is being developed [that] requires the said assets.” The department is so concerned about the assets that the document concludes in bold: “The removal of the BRPs is a nuclear option [and] should be [a] last resort.”
An initial truce — through a memorandum of understanding signed by the rescue practitioners and the department — fell through after both parties appeared at a virtual meeting of the standing committee on public accounts (Scopa) last Friday.
There, both parties were grilled by MPs about the status of the business rescue, as well as the lack of clarity on the way forward. At this meeting it became apparent there is no longer any collegiality between the rescue practitioners and Public Enterprises Minister Pravin Gordhan, with both blaming each other for the mess that is SAA.
The airline, which was thrust into business rescue last December, is on its last legs as the global ban on air travel has starved it of the revenue that provided a lifeline.
Last week, the M&G reported that the two parties had agreed to suspend the termination of jobs and the sale of assets as part of the winding-down process, and that the parties would get together in three forums to discuss finances, assets and labour.
Gordhan’s spokesperson, Sam Mkokeli, said the department was developing an airline business model that will be profitable and commercially sustainable. “The department continues to engage with labour on a weekly basis to identify solutions to the immediate challenges facing the airline. Work is under way to finalise a business plan, which will take into account the views of different stakeholders who have an interest in the sustainability of the airline,” he said.
“A sustainable airline model will require assets to operate, and once the operating model has been finalised, the department will identify the assets required to complement the business model,” he added.
The M&G has also seen the draft business-rescue plan, based on a wind-down process, that Matuson and Dongwana want to publish on May 29. The 78-page document, the M&G understands, was given to Scopa after last Friday’s meeting and provides a glimpse into the process the rescue practitioners hope to follow to finalise SAA’s winding down.
This includes the termination of employment of all SAA employees and the sale of assets, which the rescue practitioners identified as:
- Pockets of land in Johannesburg, Durban, Bloemfontein, Kimberley, East London, Port Elizabeth, George, and Cape Town;
- Saleable landing slots;
- Five Airbus A340-300, and four Airbus A340-600 aircraft;
- Divisions SAA Voyager, SAA Lounges, and SAA Cargo;
- Shares in subsidiaries SAA Technical and Air Chefs; and
- SAA’s trademark and brand.
“In an attempt to realise the best possible value for the company’s assets, the BRPs will initiate an accelerated sales process in regard to the disposal of the company’s assets. The BRPs will determine which assets are better suited to a sale by open tender of auction,” the document said.
When the assets are sold SAA as a company will cease to operate, and the business-rescue practitioners will then deduct their fee, pay severance packages to employees and attend to SAA’s other creditors.
Another section of the document reveals that SAA’s government-guaranteed debt, which stood at R9.2-billion before business rescue and will be repaid between July 2020 and the end of the 2023 financial year, is owed to Nedbank (R2.7-billion), Investec (R1.2-billion), Firstrand (R835-million), Absa (R2.28-billion), Standard Bank (R1.2-billion), IAM (R253-million), Ashburton (R113-million), Momentum (R105-million) and Sanlam (R168-million).
Nedbank, Investec, Firstrand, Absa, and Standard Bank were owed another R2-billion in business-rescue post-commencement funding, while the Development Bank of Southern Africa is owed R3.5-billion.
Matuson and Dongwana last week told Scopa that they had a business-rescue plan ready as far back as April, and that this was thwarted by the government’s refusal to grant about R7-billion to restructure the business.
Gordhan and his department in return accused the rescue practitioners — who were given R5.5-billion in post-commencement funding to restructure the company — of failing to take simple actions to save the airline. These actions include the returning of several leased aircraft, which could have freed up R100-million that could have paid for salaries in May and June, and reviewing onerous contracts.
Instead, they argued, the rescue practitioners continued to operate SAA as a business and that this led to all the money being squandered. The government was willing to extend money for SAA, but only if it was satisfied there was a viable plan in place.
The department of public enterprises document expresses a view that the government is disappointed in the rescue plan that was shared with it by the rescue practitioners, saying they “were out of their depth”.
“They did not hire the best assistance that they could have secured,” they said of the American consultancy Alvarez and Marsal. “They are seeking to save face and the easiest choice is to wind down the business … The BRPs are in full retreat,” the document said.
It also reveals that the department’s consultants, Seabury Aviation Consulting, would deliver a preliminary business plan in a week. Seabury, which has advised the department to close down SAA and start a new airline, is no stranger to Airways Park, having worked on a turnaround strategy for SAA in 2017.