Salvage, maybe, but at least we won’t all go down with SAA

Airlines are a bit like banks. Once they lose public confidence they go down very fast, bleeding cash as customers pull their deposits. It’s the confidence factor that’s often caused even solvent banks to fail. In SA Airways’ case, the airline was already insolvent and bleeding about R500m a month before workers went on strike for a week, grounding flights. Losses are estimated to have risen to R1bn as passengers take flight, as it were, with insurers no longer willing to provide cover against flights that won’t take off if the airline goes under, and travel agents refusing to book flights on it because of the risk it might happen. The strike may not have been the cause of SAA’s descent into business rescue but it was certainly the trigger in the end, coming as it did on top of the airline’s already dire financial position and its struggle to secure the R4bn more of government guarantees it needed just to get through the next six months.

Leaked documents that parliament extracted from SAA show just how badly it did over the two financial years to end-March this year, despite efforts to turn it around, and how fragile is its financial position. They reveal, too, that bankers are now reluctant to lend any more money to SAA even with a government guarantee.

It took the speed of the financial deterioration post-strike to force

SAA’s political masters to confront reality at last and allow it to go into voluntary business rescue. The alternative was liquidation, Thomas

Cook style, with staff jobless, planes grounded, passengers stranded.

SAA isn’t the first airline globally to go into business rescue, nor will it be the last. It’s an extremely tough business. Few make money and

SAA doesn’t have any of the attributes of those who do — it has extremely high costs, poor management, a location in the middle of nowhere, globally speaking, and a brand that was unloved before – and now has completely lost public trust.

So why would an SAA under business rescue have any better a chance of survival than it did before?

The short answer is that it won’t — at least not in its present form. That is, first, because the business rescue practitioner is now in charge, 100%. Politicians, trade unionists and the board may think they can control the process, but they can’t. They can advise and help but he is not obliged to listen. There is, in other words, no longer scope for political interference. Nor, crucially, is he subject to the red tape that tends to strangle public entities. He doesn’t need lengthy departmental and shareholder and political consultation and approvals in order to act. So he can be agile and make pragmatic decisions.

Secondly, his brief is quite specific in terms of the rules. He’s not tasked to build a great airline: all he must do, if he can’t restructure the company to make it solvent, is get a better outcome for the airline’s creditors than they would have had if SAA had gone into liquidation. With that as the objective, he can now go to the creditors — the airline lessors, the suppliers, even the staff — to say let’s renegotiate those contracts. Because if we don’t, liquidation is the alternative.

SAA had already looked at a “drastic restructuring” scenario in which it would cut international routes other than to the US and Europe, cut headcount, restructure SAA Technical and sell off valuable assets such as Mango, Airways Park and the Voyager programme as well as Air Chefs, which was already on the block. That work will be handed over to business rescue practitioner Les Matuson.

There is a strong sense, however, that business rescue may in the end prove to be liquidation in some form — but an orderly liquidation. That would be tragic — but less tragic than continuing to spend time and taxpayer money trying to turn around an airline that’s done little for SA’s economy or its people and has nose-dived in the end anyway.

There is no longer scope for political interference in the airline