Gordhan stakes credibility on SAA
PLAN: WANTS TO BUILD NEW AIRLINE OUT OF THE ASHES
Criticised the conduct of business rescue practitioners.
Public Enterprises Minister Pravin Gordhan is staking his own credibility and that of President Cyril Ramaphosa’s government on the creation of a new airline out of the ashes of the bankrupt national carrier.
Hit by the loss of the country’s last investment-grade rating on its sovereign debt and the Covid-19 pandemic, Ramaphosa has said hard choices will need to be made as the country restructures its economy. What the state decides to do with South African Airways (SAA) could be a litmus test for that resolve.
SAA hasn’t made a profit since 2011 and was surviving on state bailouts and government-guaranteed debt even before the coronavirus forced the grounding of almost all its planes. Both Gordhan and the team of business-rescue experts currently running the airline have suggested a strategic investment partner could help restore the airline, but with carriers worldwide expected to burn through $61 billion in the second quarter alone the list of potential buyers looks thin.
And while Treasury has found money for SAA in the past, the state’s finances have been stretched by efforts to contain Covid-19. The economy is forecast to contract 16% this year and lose as many as 7 million jobs, and Ramaphosa last month announced a R500 billion support package to contain the fallout.
“We’ve got our backs against the wall,” Cas Coovadia, chief executive officer of Business Unity South Africa, said in an interview. Regarding Gordhan, “we have the greatest respect for him, we just can’t see, given the facts, how SAA can be saved”, he said.
SAA’s board placed the airline in business rescue in December. The appointed administrators, led by
Siviwe Dongwana and Les Matuson, were expected to propose a recovery plan to creditors by the end of February, but requested an extension due to delays to funding. A further postponement was granted after the coronavirus reached SA in March, and a final plan still hasn’t been presented.
After a request for further government funding was refused last month, the administrators said the best option was an orderly winding down with severance packages offered to all staff. While the proposal was blocked in court after an appeal by labour groups, it remains the business-rescue team’s course of action, a spokeswoman said, declining to comment further.
SAA’s almost 5 000 workers are currently on unpaid leave. They are receiving some compensation from the Unemployment Insurance Fund.
Gordhan has criticised the administrators, accusing them of wasting money and lacking transparency. His plan is to create a viable airline that isn’t reliant on state funding, while saving as many jobs as it can.
“These aren’t individual decisions,” he said. “It’s government decisions the department is implementing.” A spokesman for the department of public enterprises declined to answer further queries. Obstacles to Gordhan’s plan, which has the backing of unions, include the lack of state funding. Finance Minister Tito Mboweni has repeatedly made clear he’s reluctant to put money into SAA and isn’t averse to it closing. Attracting an equity partner to invest in a perennially loss-making operation is also complicated by the government’s desire to retain control and a law that limits foreign ownership. – Bloomberg
We’ve got our backs against the wall