As SAA adopts the brace position, finding a brave rescuer will prove extremely difficult

The Italian government is expected to invite binding takeover bids in the next few days for bankrupt airline Alitalia. The national carrier filed for insolvency in May after its employees refused to support a restructuring programme that would have involved wage cuts and lay-offs.

Alitalia has been troubled for decades, consuming billions of euros in bail-out money.

The government is hoping the liquidators can avoid breaking up the company and can find a buyer for the whole airline rather than, for example, just the lucrative routes and assets.

Competition from low-cost carriers and the airline’s high cost structure helped to sink it.

But it’s hardly uncommon for airlines to go bankrupt. In the US, where almost all the big airlines have been in business rescue at one time or another, it’s often considered the best way to force the restructuring needed to cut costs and headcounts and restore profitability.

All of which brings us to the subject of South African Airways (SAA). Information given to Parliament over the past week suggests it is insolvent and illiquid and is being kept aloft, as it were, only by promises of yet another large bail-out by the taxpayer when the finance minister presents his medium-term budget in October.

Not only do the ailing airline’s liabilities exceed its assets, but it doesn’t have enough cash to pay its creditors — nor any ability to repay the almost R7bn in loans that mature in September. If the lenders decline to roll them over — taking their lead from Standard Chartered, which recently refused to roll over its R2.3bn loan, forcing the Treasury to cough up the cash — SAA will be in default.

That’s not just a big problem for SAA, but is potentially even more dangerous for the public sector as a whole. Some of SA’s state-owned enterprises have bonds and loans that include cross-default clauses. These trigger a default if any one of the state-owned enterprises defaults — so SAA has the potential to set off a domino effect with perilous consequences.

Even assuming the Treasury steps in to prevent this, it must at least be possible that one of SAA’s long-suffering creditors — a supplier, a service provider, whoever — loses patience with it one of these days and forces it into liquidation or business rescue. It’s not clear what would happen then.

And it’s a stretch to assume the government would allow this to happen, even though — as in the airline industry globally — liquidation and business rescue have often proved to be the only way to rescue airlines and take the burden off taxpayers.

The trouble is that liquidation or business rescue means selling the company, or pieces of it, and the big question is who would buy it.

It’s becoming increasingly popular in business circles to call for SAA to be sold or at least partly privatised. But SAA is not remotely saleable in its current form. It would take years to dress it up for a new equity partner or an initial public offering. It would probably require exactly the radical restructuring and cost-cutting the government has long avoided.

And, crucially, it is worth remembering that SAA was not particularly saleable the last time the government put it on the market 18 years ago, when it was in much better shape than it is now.

Not that it was healthy even then. Back in the late 1990s, the government was said to be keen to bring Lufthansa and Singapore Airlines in as equity partners. But these companies took one look and left.

The only airline that could be persuaded to buy into our national carrier was Swissair, which went bust less than two years later, mainly because of managerial missteps and a disastrous expansion strategy.

Swissair paid R1.38bn for a 20% stake in SAA in June 1999. It sold the stake back to the government for just R382m in October 2001. Now, you surely couldn’t even pay someone to take SAA away.

The only real solution is to put in proper governance and a highly experienced, competent executive team with a free hand to do what it takes, giving it the credibility to get lenders and creditors back on board. Sadly there is little sign of this.

SAA IS NOT REMOTELY SALEABLE IN ITS CURRENT FORM