The SAA business rescue practitioners have moved to finalise and implement a plan to restructure the state-owned airline, even though there isn’t yet a firm decision by the government on how SAA’s urgent funding requirements will be met.
The rescue practitioners, Siviwe Dongwana and Les Matuson, informed SAA creditors on Tuesday 28 July that most of the conditions for implementing the business rescue plan – including how the state-owned airline will be funded – have been met.
This means that the rescue plan “has come into operation”, paving the way for Dongwana and Matuson to conclude the retrenchment of 2,600 SAA workers, cut unprofitable international and regional routes to five and 19 respectively. The pair will also reduce the number of SAA’s aircraft fleet to 26 from 44 after returning small, narrow and wide-body planes to aircraft lessors.
The implementation of the rescue plan has been bedevilled by delays since SAA was placed under business rescue on 5 December 2019 because it did not have working capital to fund operations.
In the latest delay saga, the rescue plan was meant to be implemented on 22 July but the deadline was pushed to 27 July because talks were still ongoing between Dongwana, Matuson, and commercial banks about how the government will repay monies owed to banks by SAA.
The banks wanted a confirmation letter from the National Treasury setting out how the R16.4-billion that they are owed would be repaid. The amount owed to banks – including Nedbank, Absa, Standard Bank, Investec, and others – includes interest on the historical debt and additional money that they threw at SAA to ensure its operation while the business rescue plan was put in place.
The amount owed to banks is backed by government guarantees – meaning the fiscus or the taxpayer will be on the hook for repayments if SAA cannot repay the money. The fiscus will likely step in as SAA is financially distressed.
Dongwana and Matuson inferred that the issue of the letter from the National Treasury has been finalised, telling creditors that “all conditions set…were fulfilled on or before 27 July 2020.”
“The business rescue practitioners are currently attending to and finalising the remaining outstanding administrative issues before filing a notice of substantial implementation [of the plan] in terms of section 152 (8) of the Companies Act 71 of 2008,” the letter by Dongwana and Matuson reads. The Companies Act governs business rescue proceedings in SA and provides strict deadlines for such proceedings.
Big funding question hangs
There is still an unanswered question about how the government will raise more than R10-billion in new money to fund the SAA business rescue plan. At least R10.1-billion is required by Dongwana and Matuson from the government to implement the rescue plan by paying the airline’s creditors (whose debt is not backed by government guarantees), funding retrenchment packages for workers and restarting commercial flight operations by January 2021.
Public enterprises minister Pravin Gordhan and finance minister Tito Mboweni have said they will “mobilise funding” for SAA but there hasn’t been any indication yet of the source of the money. Without details on how the required funding for SAA will be mobilised, the commitment from Gordhan and Mboweni was enough to convince the rescue practitioners about the government’s continued support of the airline.
Mboweni recently said the government has not committed funding for SAA from the fiscus but it was exploring approaching strategic equity partners, local and global investment institutions, and managers of pension savings to inject money into a new and restructured airline. In exchange for their investment in SAA, private sector investors might be given a shareholding in the airline, which has been state-owned for more than two decades. DM/BM