Gordhan | Two ways to create a new SAA
There are two ways that a “new airline” can be created to take the place of South African Airways in its current form, Minister of Public Enterprises Pravin Gordhan said on Friday.
The one would be to create an entirely new company and trying to acquire a few of the most important assets of the old SAA. The other option would be to restructure or reorganise the existing SAA by doing away with what is not functioning in order to keep what is central to the mission of resulting the “new airline”.
SAA has been in business rescue since December.
Gordhan told Parliament’s Standing Committee on Public Accounts (Scopa) in a briefing on Friday that due to the devastating impact of the Covid-19 pandemic on the global airline industry, (re)starting any airline would have to be at a very low level of operation.
Asked how much money would be needed to create such a “new airline”, Gordhan said he would have to come back to Parliament with an answer. He described the theme that came from Scopa members’ questions to him as that of which came first, the chicken or the egg.
The BRPs, for their part, had said a restructure could cost an estimated R7.7 billion.
Draft annual financial statements submitted to Scopa indicate that SAA’s financial losses total more than R10 billion over the past two years. According to the documents, SAA reported a net loss of R5.4 billion in 2018, and a R5.04 billion loss in 2019. The restated losses for 2017 came to R5.3 billion.
“In the next few weeks, we will have a more certain idea of the money that would be needed, and we could take that to government. This is not about having money or not. The question is what do you [as government] provide the money for,” he said.
“How much funding government must provide, will depend on the business rescue model that is being produced. The business rescue plan must be about the new entity that emerges and that is more viable and certainly not as distressed as the old entity.”
Minister of Tourism Mmamoloko Kubayi-Ngubane, who is also chairperson of the economic cluster in Parliament, indicated during an online briefing at the end of April that she is hopeful a decision on SAA could be made by government by the end of June.
Finance Minister Tito Mboweni announced on Wednesday plans to be ready to table an “emergency” budget by 24 June, which makes provision for Covid-19 relief efforts.
For Gordhan the real impact of the pandemic on the industry will only be experienced when local airlines start to fly again. One would have to see if tickets will be affordable to the SA public and if they will be comfortable to fly again.
“Aviation is a very narrow margin business and airlines across the world are requesting assistance from governments. It is also impacting airline jobs,” he said.
“There is still work being done and to be done to establish what a ‘new SAA’ might need. The end objective is to have a viable airline at the end of the business rescue process. Let’s see what would be required for that, and how we fund it.”
‘There must be consequences’
The Department of Public Enterprises has employed the services of an aviation consultancy to see what an airline would look like in the post Covid-19 world. For instance, there might be a mismatch between the routes a “new SAA” might want to fly and the aircraft it currently has. That should be part of the consultations undertaken and would also determine how many employees would be needed under a new model.
“The DPE has the cooperation of all eight trade unions at SAA in a consultative forum. They have participated in technical workshops and in ‘designing’ a new airline. They have also indicated that they are willing to undertake a salary sacrifice if need be,” said Gordhan.
“We are also working with the unions on a social plan for those employees who will not be accommodated [going forward] and that involves training and assistance from the UIF. Once we have ‘a product’ in that regard, we will provide further communication.”
Just as during last week’s parliamentary briefing, Gordhan said offers have been received “to purchase one thing or another” of SAA’s assets. At this point it is hard to know what is genuine and what not, so there will be a screening process undertaken.
Wrapping up the briefing, Scopa chair Mkhuleko Hlengwa of the IFP said the “SAA headache” cannot continue like this.
“Let us be able to take tough decisions if they need to be taken. The business rescue plan submission cannot be open ended. There are too many generalisations and theories which bring more uncertainty in an uncertain environment,” said Hlengwa.
“An airline such as SAA cannot just collapse, and nothing happens. There must be consequences for this calamity.”