SAA MUST GO INTO BUSINESS RESCUE, RAMAPHOSA ORDERS

JOHANNESBURG - President Cyril Ramaphosa has decided that cash-strapped flag carrier South African Airways must go into voluntary business rescue, according to a letter signed by presidency director-general Cassius Lubisi.

The letter, dated December 4, says Cabinet initially adopted an approach that entailed restructuring the struggling airline. However, it adds that "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," it says.

Speaking to Fin24 on Wednesday night, SAA spokesperson Tlali Tlali did not comment on the letter itself, but directed Fin24 to its authors. Fin24 has been told by a senior government source that a formal statement was going to be issued on Wednesday night.

Business rescue, under Chapter 6 of the Companies Act, allows South African companies in "financial distress" or trading in insolvent circumstances to file for business rescue. Once a resolution has been adopted, a business rescue practitioner is appointed to reorganise and restructure the business.

Trade union Solidarity announced in November that it had launched a court bid to have the cash-strapped airline placed in business rescue, as Fin24 previously reported. SAA had earlier said it intended to oppose the application.

Minister of Public Enterprises Pravin Gordhan, in a statement issued on Thursday morning, said business rescue was the "optimal mechanism to restore confidence in SAA."

On Sunday he announced that the airline would go through a "radical restructuring process" to ensure its financial and operational sustainability, without providing further details.

On Thursday last week 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 Both Santam and Hollard insurance later said they had withdrawn insolvency cover benefit on SAA tickets.