SAA set for final descent if there’s no bailout

South African Airways (SAA) is in a dilemma: it has been advised not to opt for liquidation or business rescue but the financial bailout management is praying for may not arrive as Minister of Finance Tito Mboweni may not be keen to throw more money into a bottomless pit.

The struggling airline is pinning its hopes on a promise made by its shareholder, the department of public enterprises, but this would come to naught if National Treasury did not back it.

SAA leadership said the carrier could only continue as a going concern if it received a capital injection or a government guarantee to lenders.

Econometrix chief economist Dr Azar Jammine said the government had to make a decision.

“It’s the government that must decide about the direction SAA must take, but I don’t think business rescue or liquidation would be their option.”

He said that at the moment SAA was not making any revenue and spent more than it received. “The government must provide them with money otherwise they won’t be able to survive. They can’t pay creditors, can’t pay for fuel, food and technical services. Basically they can’t operate.”

At the last meeting of the select committee on public accounts (Scopa), SAA non-executive director Martin Kingston was at pains to explain the precarious situation SAA was in, even before the ongoing strike.

Kingston highlighted that lack of liquidity was SAA’s fundamental problem. He said SAA was technically insolvent and they could not give the assurance that it was still a going concern.

He said the SAA board had sought legal advice that assured it that, given the shareholder’s confirmed support, it was not trading recklessly in violation of section 22 of the Companies Act.

However, he stressed that there was a difference between having an assurance from the department that the requisite financial support would be forthcoming, and having the finances and business prospects to qualify as a going concern.

If SAA lost its status as a going concern it would face the risk of calls for the immediate settlement of debts, negative impacts on trade and travel, and the loss of 10,000 direct and over 40,000 indirect jobs.

As a result of the strike, the airline was losing more than R50 million a day and might lose the confidence of its market.

After cancelling flights last week, SAA yesterday announced alternative arrangements for its customers, including that Mango would run its domestic flights.

Scopa has demanded the board to account for the SAA financial statements not submitted for the past two financial years.

Kingston said if SAA prepared financial statements as a going concern, there was a risk of receiving a disclaimed audit opinion.

The other option was to prepare financial statements on the basis of liquidation, but this would have catastrophic consequences.

If the airline was liquidated, SAA had obligations of over R40 billion it would need to settle immediately. And the government would lose its control over the airline.

Kingston said the board had discussed business rescue, but legal advice had indicated against this route.

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