SAA's business rescue practitioners have their work cut out plotting a new course for the embattled airline as they face yet another funding crisis.
Tomorrow's cabinet meeting will hopefully provide a clearer picture of what is envisaged for SAA. On Wednesday night the cabinet issued a statement saying it had directed public enterprises minister Pravin Gordhan to prepare a report on SAA for discussion at its meeting on Monday. This follows the government's rejection of a request from the business rescue practitioners for a minimum R7.7bn in funding.
Rescue practitioners Les Matuson and Siviwe Dongwana are also involved in a retrenchment process with staff at the airline.
Contacted for comment about the latest developments, Dongwana said on Thursday: “The business rescue process is continuing, as is the section 189, which could offer employees a better outcome than what a liquidation would. I am committed to fighting to rescue a business where I believe there is a business.”
The government's choice is either to inject capital into a loss-making business or pull funding completely and risk lenders calling in the substantial government-
guaranteed debt. According to the National Treasury, in terms of the 2020 budget, the government has over the medium term “allocated R16.4bn to settle guaranteed debt and interest” at SAA.
The question now is whether there is any hope of SAA surviving, even in a different form.
Adrian Saville, CEO and founder of Cannon Asset Managers, said the outlook is bleak. Unless SAA can find a way to “turn itself cash flow positive, or demonstrate a compelling strategic positioning, it's hard to see a business case”, he said.
Saville said if there is an argument to be made that SAA is a strategic investment for the country, then “one would expect it to behave strategically”, which it hasn't. He says one of the best strategic opportunities would have been SA's relative industrial competitiveness compared to the rest of Africa.
Yet, from 2007 to 2019, SAA's travelling passengers decreased from 8-million annually to 6-million, while over the same period Ethiopian Airlines increased its 2-million passengers to 12-million.
“Here are operators in the exact same industry, presented with very similar environments, and one operator has really seized the opportunity and the other has taken its losses deeper into the red.”
Referring to SAA's most recent bailout in the form of a R3.5bn loan in February from the Development Bank of Southern Africa (DBSA), Saville said that “in the space of two months this money is gone”.
Asked to comment this week about the latest developments at SAA, DBSA deputy chair Mark Swilling declined.
Wayne McCurrie, portfolio manager at FNB, said you can't keep SAA running if it is making losses every year, because that means the debt just keeps getting bigger.
“It's not an industry you want to invest more capital in — whether you're a government or a private investor.”
But Linden Birns, MD of Plane Talking, a consultancy to the air transport industry, said there is an argument for saving SAA or replacing it with an airline of similar capabilities. “Whether we like it or not, SAA is pivotal to the entire air transport system in this country.”
Birns said infrastructure providers such as the Airports Company SA, the Air Traffic & Navigation Services, the SA Weather Service and regulators such as the Civil Aviation Authority all derive a large portion of their revenues from user and passenger charges — making them co-dependent service providers.
“If you remove the SAA block from the Jenga tower, you are putting a large question mark over the viability of all those other institutions that are required for the entire air transport system to function.”
Aviation economist Joachim Vermooten said there are still options available. SAA will have to look at further downscaling of its envisaged flight network and may have to sell SAA Technical and Mango to raise money, retrench staff and “operate a very small-scale business model”. Another way out would be a planned closure of SAA.
“You could franchise the name and branding to another international airline that has the capacity to operate and have a contract for five or 10 years, which can be renewed, which is how SA originally started long-range aviation. The government in the late 1920s and early '30s provided subsidies to [UK-based] Imperial Airways' operation from London to Cape Town. It only had provisos that some of the staff had to be South Africans. This would take us right back to where we started.”
Meanwhile, SAAhas placed all staff on compulsory annual leave as it tries to ensure they receive salaries at the end of April.
The airline's business rescue practitioners said on Friday that, like other employers, SAA is not obliged to pay salaries if employees cannot provide the service for which they are employed, but it wants to “provide an income to employees during lockdown”.
Making staff take annual leave ensures that they will receive some if not all of their salary, depending on whether they have used all their leave.
In terms of common law, employers do not have to pay employees if they can't perform their duties.
In a letter to staff from the airline dated April 1, SAA advises employees about the “possibility of being placed on unpaid leave in the event of their annual leave balances to their credit [being] depleted during the lockdown”.
SAA says in the letter that while it intends to access the Unemployment Insurance Fund's Covid-19 relief fund to “cushion the salary implications of unpaid leave where it materialises”, it also encourages its employees to “make necessary arrangements with their financial service providers in respect of the imminent implications of unpaid leave on their April salaries”.
The South African Cabin Crew Association chief negotiator and PR, Feroze Kader, said: “This was a unilateral decision made by SAA. We object to the entire process the airline has followed. All the unions at SAA should have been consulted.”
