A draft plan proposed by the business rescue practitioners of South African Airways calls for taxpayers to cough up about R4.6 billion more to save the debt-laden struggling national flag carrier.
The draft proposal, which has been seen by Fin24, makes provision for
- a further working capital injection of R2 billion to restart the airline after the coronavirus pandemic is over;
- R2 billion for retrenching about 48% of SAA’s about 5 000 employees; and
- R600 million to be distributed to general concurrent creditors.
This is in addition to R16.4 billion already allocated to the national airline in past budgets for the repayment of historic guaranteed debt.
SAA went into voluntary business rescue in early December 2019, and had most of its routes cut earlier in the year in an effort to save costs. Since the coronavirus flight bans came into place, SAA has basically only flown ad hoc cargo and repatriation flights.
The draft plan, which is now open for comment by affected parties, including the state as shareholder, proposes a “new SAA” to fall under a new holding company that would also oversee SAA City Centre (SACC) ticketing offices, SAA Technical, Air Chefs, and state-owned low-cost subsidiary airline Mango.
The airline’s business rescue practitioners, Les Matuson and Siviwe Dongwana, said in a statement on Monday that they would not be commenting on the “leaked draft”.
“Given that, it is a draft and has not received agreement or comment from any of the relevant affected persons, we will not comment on the leaked draft to the media and will await input from the affected parties as is prescribed by the Companies Act. To assume and comment on this draft as if it is the final version would be very irresponsible”.
The draft plan proposes structure proposes “nothing new” and basically just creates a new holding company in the view of Alf Lees, DA member of the Standing Committee on Public Accounts. He published his views as well as the draft plan on the DA’s website on Monday.
“That money must come from somewhere: likely taxpayers again. If this draft business rescue plan is approved in its current form, SAA will continue to be a fiscal blackhole for years to come. The BRPs are projecting that the ‘new SAA’ will trade at massive losses totalling R19.9 billion for the first three years – R8.1 billion loss in year 1; a R7.5 billion loss in year 2 and a R4.3 billion loss in year 3,” said Lees.
“These losses exclude trading losses by Mango, SAA Technical, Air Chefs, and SACC subsidiaries which are also likely to rake up tens of thousands or even billions of rand in losses.”
Affected parties, including creditors, unions and government as shareholder, now have to submit feedback on the draft plan, which may still change. The airline’s business rescue practitioners have obtained an extension to submit the plan by 8 June, instead of last Friday.
“In the new structure SAA Technical and Air Chefs are kept. They probably want to create a new holding company to keep all the old debts in the current company,” said Lees.
“About R600 million is ring fenced for old creditors. But those creditors took the risk of doing business with a bankrupt airline, so why must taxpayers now bail them out?”
Furthermore, Lees does not understand how it can cost R2 billion to retrench about 2 000 of the airline’s employees.
As far as the DA is concerned, the airline cannot be rescued without further bailouts.
“Unless the business rescue practitioners come up with a plan to rescue SAA without more bailouts, it has to be liquidated,” said Lees.
“It would be immoral to suggest that taxpayers would have to, at any stage, bail it out again, especially now that the government is in such deep fiscal trouble. Bailing out SAA would be wrong under any circumstances.”
President Cyril Ramaphosa told the SA National Editors’ Forum on Sunday that the Covid-19 crisis has provided an opportunity for government to reform its state-owned enterprises. Speaking about SAA, Ramaphosa said that the business rescue process is reaching a point where it could move forward with a new airline.
UPDATE: The DPE responded that it will review the draft plan proposed by the practitioners, explore various funding options and communicate its decisions in due course.
“The government has embraced the restructuring process as part of a path to a new, dynamic and financially viable airline that will serve South Africa’s economic and strategic interests,” it said.
Fin24 also approached unions represented at SAA for comment. At the time of publication the National Transport Union (NTM) responded that it received the draft and is studying the contents.
“We hope government will do the right thing whether restructuring the airline or creating a new one,” said NTM president Mashudu Raphetha.