No more business as usual for SAA
Up to business rescue veteran to pull carrier out of its nose-dive
● Members of SAA’s board and management team met newly appointed business rescue practitioner Les Matuson on Friday to brief him on the state of the failing airline and bring him up to speed as quickly as possible so that he can assess what can be salvaged and put a rescue plan in place, while keeping SAA flying.
This comes after President Cyril Ramaphosa gave the go-ahead on Wednesday for the SAA board to put the airline into voluntary business rescue.
This averted any liquidation applications by its creditors as the airline’s finances continued to nose-dive, with new flight bookings having dried up after a one-week strike grounded planes, and disagreements within the government about whether to bail out the airline dashed confidence.
This is the first time a state-owned company has gone into business rescue in SA, and though several airlines have gone into liquidation in SA and globally, there are few precedents in the industry for the business rescue process.
In terms of the Companies Act, Matuson, appointed by the board on Thursday, has 25 days to file a business rescue plan to put to SAA’s creditors for approval, though the timeline can be extended. Matuson oversaw the business rescue of Ellerines and Highveld Steel and the restructuring of Edcon.
He is now in charge of the airline, with full authority over the board and management, and is expected to meet creditors, trade unions and other stakeholders as well as SAA’s executive and board in coming days.
After trade union Solidarity met with Matuson and the SAA board’s attorneys, Dirk Hermann, CEO of Solidarity, said: “The independence of the business rescue practitioner is of critical importance. We have seen the results of government’s interference in the running of the airline.”
Whether and how much of the airline can be salvaged will be clear only later, but public enterprises minister Pravin Gordhan has called it a radical restructuring and experts expect that the process could involve a review of SAA routes to focus only on those making money, as well as retrenchments, asset sales, and the renegotiation of contracts with suppliers, including aircraft leases.
Nedbank CEO Mike Brown said: “It’s an opportunity to have an orderly resolution of the issues facing SAA without the threat of a disorderly liquidation. The business rescue practitioner’s sole purpose is to restructure the business to enable it to continue operating on a solvent basis or to result in a better outcome for creditors than in a liquidation.”
SAA board member Martin Kingston said: “This is not business as usual funded by the government. This is a case of salvage what you can. SAA was about to be grounded and placed in liquidation, with catastrophic implications.”
The airline has been haemorrhaging cash and though this began before the strike, with customers losing confidence in the airline in response to mixed messages from the government over whether it would grant SAA the guarantees it needed to stay in business, the strike worsened the crash in confidence. The airline is now estimated to be burning about R1bn a month as losses mount.
This is a case of salvage what you can. SAA was about to be grounded and placed in liquidation, with catastrophic implications
The government will now provide R4bn of “post-commencement finance” to support the business rescue programme, in the form of a R2bn cash transfer and a guarantee that will unlock a further R2bn in new lending from SAA’s existing bankers, which the government will pay back later out of future budget allocations.
Banks had refused to lend more money to SAA after it failed serially to deliver on its turnaround promises and admitted it was insolvent. That left the airline struggling to find the working capital to pay November salaries and creditors, even though it had already been granted a R5.5bn bailout in the medium-term budget, with the government also undertaking to pay back its R9.2bn in government-guaranteed debt over the next three years.
Bankers have been in talks with SAA and its shareholder for up to 15 hours a day over the past couple of weeks in an effort to come to a solution, and the banks will now provide the funds to support the launch of the business rescue process. “It satisfies us because it creates the real possibility for a change of course for SAA,” said one banker.
The voluntary business rescue will preempt Solidarity’s application to the courts to put the airline into business rescue, which was expected to be heard in January. The government and SAA were concerned the court application would trigger an immediate liquidation of the airline, because without the government making extra funding available, the court could have concluded liquidation was the only option. In a liquidation, SAA’s planes would have been grounded immediately, with passengers stranded, and all 9,000 staff losing their jobs.
Gordhan said on Thursday the business rescue process would prevent a “disorderly collapse of the airline, with a negative impact on passengers, suppliers and other partners in the aviation sector in SA”.
The focus could now turn to ailing stateowned low-cost carrier SA Express, which is separate from SAA but might also be a candidate for restructuring. Gordhan said SAA’s business rescue “also provides a structured opportunity to reorganise the state aviation assets in a way which they are better positioned to be sustainable and attractive to an investment partner”.