SAA ‘will undergo a radical revamp’
Department of public enterprises says the airline is determined to remain open for business
SAA, whose future hangs in the balance after a crippling strike, is determined to remain open for business, but will go through a “radical restructuring process” to survive, says the department of public enterprises.
The airline’s board and executive committee have been locked in intense discussions with the department and the Treasury over the past week in an effort to secure a loan guarantee of at least R2bn in order for it to continue trading.
The statement on Sunday made no reference to whether the guarantee had been extended, but said “SAA cannot continue in its current form”.
“SAA has been through difficult challenges over the years, and more particularly in the past few weeks,” the department said.
The strike by the National Union of Metalworkers of SA and the SA Cabin Crew Association over wages and proposed job cuts “caused immense damage to the reputation, operations, and the deterioration of the finances of SAA”.
The airline “therefore, cannot continue in its current form. The airline group will now go through a radical restructuring process, which will ensure its financial and operational sustainability. There is no other way forward,” said the statement by the department.
It is believed, from individuals close to the process, that the Treasury had not budged on the loan guarantee.
As commercial banks will not provide funding without it, SAA cannot access working capital, which it needs to pay staff and suppliers as its operating costs far exceed revenue.
This has left SAA with only three options: liquidation, business rescue or radical restructuring. While the airline has already announced job cuts, which it has agreed with unions will be negotiated starting in January, the cuts to both workforce and routes now will need to be far deeper and will have to be negotiated sooner.
The break-up of the SAA group, which includes the lowcost carrier Mango, airline SA Express, catering business Air Chefs and aircraft maintenance division SAA Technical, has
become a growing possibility.
Mango has been profitable in the past but as its financial statements are part of the SAA group and have not been tabled for the last two years, it is not clear whether that remains the case.
Financial statements compiled for SA Express, which Business Day has seen, showed that losses have widened over the past year to R591m.
The airline also received an audit disclaimer as its going concern status could not be determined by the auditor-general.
SAA is insolvent with liabilities exceeding assets by about R15bn. It has received R5.5bn in bailouts from the Treasury in 2019, as well as an undertaking to repay R9.2bn in historic debt.
The airline has not made a profit since 2011 and was a key site of state capture for ANC cronies. A close friend of former president Jacob Zuma, Dudu Myeni, who also chaired the Jacob Zuma Foundation, was SAA chair until October 2017.
Market jitters are growing over the future of SAA. One of SA’s largest retail travel agents Flight Centre has issued a “stop sell” order on future tickets and Santam insurer TIC has withdrawn insolvency cover after its international reinsurer had done the same.
While the government reassured customers on Sunday that they could buy tickets with confidence, it gave no details on the restructuring, saying only “various options are being explored”.
“SAA is determined to remain open for business. Management
is also committed to ensure financial sustainability going forward,” said the department’s statement.
“[The] SAA board and management will intensify its marketing campaigns to rebuild confidence in the airline and will take bold initiatives to increase its market share.”