It continues to be a tale of two possibilities for South African Airways (SAA) – with Friday seeing the business rescue practitioners announce that they have been given a further extension to produce a draft restructuring plan for the airline, and Deputy Finance Minister David Masondo saying that the option to liquidate SAA is not completely off the table.
Masondo was speaking at a post-budget review dialogue at the Four Seasons Hotel in Johannesburg. He spoke about the biggest pressures on the fiscus – one being the government’s consistent bailouts to state-owned entities.
SAA received R16.4 billion (over three years) in Finance Minister Tito Mboweni’s budget speech on Wednesday, specifically to cover the airline’s guaranteed debt and interest. Mboweni said more money would still be needed to fund the state-owned carrier’s restructuring.
The cost structure of SAA is “very high” Masondo said, describing how the airline burns through R2 billion in two weeks, mainly in paying for fuel, salaries, leased aircraft and maintenance.
Treasury wanted liquidation
“We had a very simple solution as Treasury when the business rescue practitioners [BRPs] came to us with three options – the one we liked was to liquidate, but we were not successful as the outcome was to restructure,” said Masondo.
The airline was placed under voluntary business rescue in December, receiving R2 billion in post-commencement funding (PCF) from local commercial banks, with a further R2 billion to be provided by the state. Towards the end of January the Development Bank of Southern Africa swooped in with an emergency loan of R3.5 billion when the business rescue process was put on the line due to government not being able to raise its half of the PCF on time.
Treasury is now worried that the R3.5 billion will run out by mid-March, said Masondo.
Public Enterprises Minister Pravin Gordhan recently made similar statements to parliament’s standing committee on public accounts and the public enterprises committee.
Masondo said the debate to liquidate the airline was “not dead in government” as they wait to see the BRPs’ restructuring proposal.
“We will look at the business rescue plan and maybe it will present more persuasive arguments because we are willing to be persuaded,” said Masondo.
“Let the facts speak – and the facts right now show that this entity must go.”
In a statement released on Friday, BRPs Les Matuson and Siviwe Dongwana explained that lenders and creditors had allowed them to extend the date of publication of the business rescue plan from February 28 to March 31 to allow time for all the relevant stakeholders to be consulted.
The employees’ and creditors’ committees as well as the Department of Public Enterprises will be given an opportunity to make representations to the practitioners regarding the draft rescue plan. Within 10 days of the plan being published, creditors will have the last say at a meeting where they will vote on whether or not to approve it.
“We believe that a further extension of one month will allow for sufficient time for us to finalise the draft plan, given the complexity and extent of engagement that is required in a business of this size. We then intend to communicate the plan to the creditors’ committee, the employees’ committee and the shareholder prior to the actual public publication of the plan,” said the BRPs.
President Cyril Ramaphosa and the ruling party expressed disapproval when the BRPs cut all domestic flights except for limited service between Johannesburg and Cape Town in February.
The National Union of Metalworkers of South Africa (Numsa) and the South African Cabin Crew Association (Sacca) have threatened to approach the courts if the BRPs fail to give workers an opportunity to review the draft restructuring plan prior to its publication.
The two associations have already lost a Labour Court application to stop the BRPs from instituting possible retrenchments at the airline, which they have vowed to appeal.
Masondo said the decision to not liquidate was premised on the hope that SAA will succeed if given the chance to restructure its business model, which includes cutting routes and labour.
“Because you can’t cut routes and not reduce the number of people operating that business,” he said.
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