Financial Mail


As the business rescue process drags on, there’s more uncertaint­y than ever around the future of SAA. Is it time to finally ground the carrier, or can a new airline be launched from its ashes?

- Genevieve Quintal quintalg@businessli­

The multibilli­on-rand aviation industry, which has been left devastated by the Covid-19 pandemic, may have seen a glimmer of light on Sunday, when President Cyril Ramaphosa announced the possibilit­y of limited air travel as SA eases its lockdown to level 3 on June 1.

This would be allowed only for business reasons and, according to draft amendments to the transport regulation­s, only between Joburg, Cape Town and Durban at set times.

But while it may look as if the government has thrown the country’s airlines a lifeline, it’s uncertain that this will be sufficient to make a real difference.

Aviation has been one of the biggest casualties as the pandemic forced countries into lockdown and to close their borders. Even well-run, profitable airlines are facing collapse and have had to seek bailouts from their government­s.

Against this backdrop, SA’S government has floated the idea of launching a new, viable and profitable airline — rising out of the ashes of ailing national carrier SAA.

But key questions, such as how this will be done and who will fund such a venture, remain unanswered.

Economists believe there is no hope for SAA; they say it should be wound down or liquidated along the lines proposed by the business rescue practition­ers. Either way, they believe it’s time SAA is laid to rest.

Public enterprise­s minister Pravin Gordhan, however, has a different — some may say ambitious or even unrealisti­c — plan to start another airline.

The biggest concern is funding: will the taxpayer once again have to fork out money to keep an unprofitab­le airline going?

In Gordhan’s view, the objective in the short to medium term is to have the new airline “divorced from the fiscus totally”.

“There is a reasonable amount of confidence that we can pull it off. Some possibilit­ies are being explored,” he tells the FM.

Gordhan says further legal and technical work is needed to clarify the procedure, but the restructur­ing process — launching a new airline out of SAA — is the best way forward.

For a start, creating a completely new company would bring a number of complicati­ons — waiting for new licences and other essentials, for example, which would be lost if the airline was completely shut down.

Gordhan notes the devastatin­g impact Covid-19 has had on the distressed airline, and on aviation generally.

“One of the key objectives right from the beginning was: we want a viable, sustainabl­e and competitiv­e airline,” Gordhan says. “Number two [was to] try to save as many jobs as possible, and number three to cut the dependence on the fiscus.”

There will be some expenses involved — some retrenchme­nt costs, for example, and “other minimal costs” — but he says “as much as possible we want to look for other ways of bringing money into the airline”.

As it stands, SAA is insolvent, with liabilitie­s that outweigh its assets.

The airline was forced into business rescue in December — but there has been little progress. If anything, the process has been tumultuous, with running battles between business rescue practition­ers Les Matuson and Siviwe Dongwana, unions at the airline and the department of public enterprise­s.

Five months on, there is still no business rescue plan in place (the practition­ers have been granted a number of extensions).

The practition­ers say they can’t put a plan together without funding from the government. The government says it won’t provide funding until a credible plan is presented.

In April, the government informed Matuson and Dongwana that no further funding would be made available for SAA. This led the business rescue practition­ers to propose a structured winding-down process that would involve retrenchin­g all employees.

But unions and the government opposed this, along with any suggestion that the airline be liquidated.

It led to a “leadership compact” being signed between the government and the unions represente­d at the airline; they would work together to transition

SAA into a new airline.

At the same time, the unions launched a legal bid to halt the retrenchme­nt process. Retrenchme­nt notices, issued under section 189 of the Labour Relations Act, were set aside after an applicatio­n by the National Union of Metalworke­rs of SA and the SA Cabin Crew Associatio­n.

In the face of the “leadership compact” and the legal order, however, the business rescue process has continued. And on Monday, the practition­ers were granted permission to appeal the judgment setting aside the retrenchme­nt notices.

Their decision to appeal the judgment has angered Gordhan and the unions, which accuse the practition­ers of wasting money.

Now, the FM has been reliably informed by two separate sources close to the process that a draft business rescue plan will be tabled this week.

Gordhan, without elaboratin­g, summarises the process that lies ahead: the first step is to wrap up the business rescue process. In parallel with this, a business model for the new airline needs to be drawn up and incorporat­ed into the business rescue plan.

In another parallel process, the department needs to prepare for the new airline to be establishe­d and ensure that the government keeps abreast of, and responds to, developmen­ts in the aviation sector and those related to Covid-19.

While all of this is on the go, SAA needs to prepare itself to take to the skies again, if some travel is indeed allowed to resume in June. This would be to ensure it does not lose market share, Gordhan says.

The airline says it’s already focusing on ensuring operationa­l readiness to resume flights, and will retain its domestic schedule between Joburg and Cape Town with effect from mid-june — assuming flying is allowed.

It is cancelling all planned scheduled flights on regional and internatio­nal services until the end of June 2020, due to the ongoing fallout from Covid-19.

But the government’s best plans may yet come to nothing. Aviation economist Joachim Vermooten says the Covid-19 pandemic makes it impossible to create a new airline at this time.

He questions, for example, whether investors or big airlines, which are fighting for their own survival, would even consider entering into an equity partnershi­p at present.

“It is not the ideal time for investment into a new start-up — apart from all the problems SAA is having,” Vermooten says.

“I don’t think it is practical at this stage … and I don’t think there will be any investors available for some time after the Covid-19 [challenge] has been resolved and airline demand is picking up again.”

It is not clear how long it will take the aviation sector to recover. After the 9/11 terror attacks in the US, it took three years for for the sector to bounce back, he explains. This was largely because of regulatory interventi­on around flying — which is likely to be the case again with Covid-19.

These are not normal times, Vermooten says. And the slight easing of lockdown regulation­s in SA, which could allow some domestic flights, is not enough to get the industry going again — never mind SAA.

Besides possible regulatory obstacles, there are also questions around domestic demand. Even if flights were available, people might be too afraid to fly, and opt instead to continue doing business electronic­ally, or travel by land if need be.

Lumkile Mondi, senior lecturer at Wits University’s School of Economics & Finance, is also not convinced that a new stateowned airline is the right move. He believes the government’s insistence on owning an airline is ideologica­l rather than economic.

“I think Gordhan realises that the damage [the government] has done to the SA economy is enormous and the only way to salvage any pride is to keep these things,” Mondi says.

Though “the case for state ownership is not convincing at all”, Mondi believes the current administra­tion is keeping SAA in the air because it doesn’t want to go down in history as the government that destroyed the national carrier.

Eventually, he says, the administra­tion will make SAA someone else’s problem — when it’s clear it won’t be blamed for the airline’s failure.

The business rescue practition­ers say they cannot put a plan together without funding from the government. The government says it won’t provide funding until a credible plan is presented

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