The government’s decision to deny SAA a further taxpayer-funded bailout to keep it afloat has been applauded by SA’s biggest business organisation, which says the death of the bankrupt state-owned airline is now imminent.
Business Unity SA (Busa) president Sipho Pityana says SA would have been in a much better fiscal position, which would help the country withstand the economic blow from the five-week lockdown, if the government had long ago embraced structural reforms, including starving SAA of multi-billion-rand bailouts.
“We now know what we have always known: the government will never be able to rescue SAA even though we have thrown so many resources into the airline and tried to put it under business rescue,” Pityana says in a Business Maverick interview.
Public enterprises minister Pravin Gordhan, who oversees the operations of SAA, has been asked by President Cyril Ramaphosa to prepare a report about the future of the airline, which will be discussed at an urgent cabinet meeting on Monday 20 April.
SAA, which has recorded about R26-billion in financial losses over the past six years and enjoyed successive government bailouts amounting to R20-billion over the same period, has had a turbulent March and April.
The financial position of the bankrupt SAA is worsening, and the airline cannot generate revenue because it suspended domestic, regional and international flights from 27 March due to the travel ban imposed by Ramaphosa to contain the spread of Covid-19.
On 10 April, Gordhan rejected a R10-billion funding request by the airline’s business rescue practitioners because the government has limited financial resources. The R10-billion would enable SAA’s restructuring process to continue while a final business rescue plan was put in place.
The money would have been raised by the government in foreign capital markets. SAA cannot raise money in the local market because it owes a consortium of commercial banks a lot of money and its financial position is dire. Says Busa’s Pityana:
“Even after all of that [awarding SAA bailouts over many years], we still have a R10-billion hole that has been presented to us by the business rescue practitioners. Rightly, the government has shown them [the business rescue practitioners] the door. What that means is… RIP SAA.”
Pityana expects the lockdown to throw SA’s economy into a contraction of between 8% to 10% in 2020 and a fiscal deficit of 10% as the government will spend more money to fight Covid-19, which might result in “runaway government debt”.
“The uncomfortable truth is that we don’t have the capacity to drive some of the state-owned enterprises (SOEs) like SAA. Others are critical for the strategic direction of the economy or influencing the economy. The Covid-19 situation we are in means that a lot of the SOEs might have to be closed instead of having to be sold,” he says.
Pityana’s colleague at Busa and former SAA board member Martin Kingston agreed with him, saying SOEs that are systemically important to SA’s economy should be “appropriately capitalised and allowed to oversee key aspects of the economy without undue interference and within a properly regulated environment.”
A fire sale of SAA assets
Without the R10-billion government bailout, the SAA rescue practitioners have now launched a fire sale of the airline’s assets to free up cash to fund a process to retrench workers at the end of April.
SAA employs 8,997 workers, according to the rescue practitioners, some of whom have been offered severance packages if they agree by 24 April — through their trade unions — to be retrenched by the airline.
In a proposal to trade unions, the rescue practitioners said for SAA to pay severance packages, the airline was required to sell and dispose of its assets. The SAA assets for sale are property, which may be realised in six to 12 months; rotables (aircraft parts), which may be realised within 12 to 24 months; trade debts, which may be collected in about six to 12 months, “depending on the financial position of the debtors”.
The practitioners said the severance packages to workers could only be paid if SAA assets could be sold at a reasonable price. If a buyer(s) is found and a reasonable price is paid for the assets, SAA will pay the severance packages to workers every month for six months.
Without funding, SAA faces the worst-case scenario of liquidation, which will result in 8,900 job losses and spark an immediate R6.3-billion liability for the government to settle SAA’s short- and long-term debt.
However, the public enterprises department said SAA isn’t embarking on a mass retrenchment process of its workers as discussions with unions about a new business model for the airline are still ongoing.
A Johannesburg-based aviation expert, who advised SAA on a turnaround plan five years ago, said there is a big possibility that the airline’s creditors might not get their money back.
“How can creditors expect the business rescue practitioners to pay back the money that is owed to them when the airline doesn’t even have money to pay retrenchment packages to its workers?” the expert asked. BM