SAA placed in business rescue from today
Minister of Public Enterprises Pravin Gordhan has issued a statement to confirm that South African Airways will be placed into business rescue immediately.
This decision was taken by its board, and supported by government, said Gordhan. This follows the leaking of a letter on Wednesday evening from President Cyril Ramaphosa to Cabinet, stating that the national airline must enter voluntary business rescue.
“This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner,” said Gordhan.
He added that SAA’s reliance of government finances must be reduced as soon as possible. But government will give SAA an additional R2 billion "a fiscally neutral manner" to help keep the airline operational.
“It must be clear that this is not a bailout,” Gordhan added. "This is the provision of financial assistance in order to facilitate a radical restructure of the airline."
The business rescue process will begin on December 5, according to Gordhan. He said a business rescue practitioner will be chosen to take charge of the business.
Read Gordhan's statement here
In a separate statement on Thursday morning, SAA said its board had taken a "considered and unanimous conclusion" to place it into business rescue to create a "better return for the company’s creditors and shareholders".
Business rescue is aimed at “rehabilitating” a company that is in severe distress. A business rescue practitioner is appointed who has to run and restructure the business. Government won’t be able to intervene at all: all the power is with the practitioner. The aim is to put the company on a sustainable footing and save jobs, or if the company can’t be saved: ensure better returns for creditors.
Importantly, during a business rescue, the company gets protection against legal claims by creditors. It will offer SAA a bit of a breather while the practitioner sorts out its business.
The practitioner will also undertake “rationalisations” as are necessary, Gordhan said. This includes reorganising the state aviation assets in a way in which they are better positioned to be sustainable and attractive to an investment partner, he added.
“This set of actions should provide confidence to customers of SAA to continue to use the airline because there will not be any unplanned stoppages of flights or cancellation of flights without proper notice should that be necessary.”
“Our desire is that the restructured airline will mark the beginning of a new era in South African aviation and must be able to bring in millions more tourists into SA,” the minister said. Gordhan said his department will meet “on an urgent basis” with the business rescue practitioner, all the unions concerned and other stakeholders.
Ramaphosa, in a letter dated December 4 and signed by presidency director-general Cassius Lubisi, said that while Cabinet had initially adopted an approach that entailed restructuring the struggling airline "developments have now necessitated a change of approach" to address the "dire situation".
"In this regard, SAA will have to urgently go into voluntary business rescue," he said.
Gordhan on Sunday had said that a weeklong strike in November by members of Numsa and the SA Cabin Crew Association had "caused immense damage to the reputation, operations, and the deterioration of the finances of SAA". SAA previously said the strike had cost it an estimated R50m per day.
Numsa has denied the strike crippled the airline, arguing the state-owned entity was already in dire straits and the industrial action was, in part, initiated to force the airline to improve its governance. The union said it would be providing comment on the business rescue decision on Thursday.
Last week, meanwhile, travel group Flight Centre South Africa said it had made a decision to stop selling SAA tickets, citing "ongoing concerns" about the airline's financial stability and the unwillingness of their travel insurance providers to continue covering it. Both Santam and Hollard insurance later said they had withdrawn insolvency cover benefit on SAA tickets.
'First in the door'
In mid-November trade union Solidarity announced it had lodged a court application to place the airline place in business rescue, which SAA at the time said it intended to oppose.
On Wednesday evening Solidarity's chief operating officer Dirk Hermann told Fin24 a meeting had been scheduled between the legal teams of Solidarity, SAA and government ministers on Thursday morning with Deputy Judge President Phineas Mojapelo to discuss the case and a possible court date. He said the union was not withdrawing its application.
- Additional reporting by Marelise van der Merwe, Carin Smith and Lameez Omarjee