The 17-month-long business rescue process of SAA has ended, with control of the troubled airline set to be handed over to its interim executive management and board.
The business rescue practitioners filed a notice on Friday 30 April at the Companies and Intellectual Property Commission (CIPC) to end the rescue and restructuring process, saying the airline was now “solvent and liquid”.
Business rescue practitioners are required to inform the CIPC when a company voluntarily or involuntarily enters business rescue, which is provided for by the Companies Act, and also when the process ends.
“The BRPs [business rescue practitioners] of SAA have today [30 April] filed a notice of substantial implementation with the CIPC and so brings to an end the business rescue process of SAA which commenced 17 months ago on 5 December 2019,” Siviwe Dongwana, one of the practitioners, said in a statement.
The rescue of SAA was unprecedented as it was the first time the government had placed a state-owned entity under such a restructuring process. Business rescue is an attempt to rehabilitate companies that are financially distressed by restructuring their affairs.
The filing of the notice at the CIPC means the SAA interim executive management and board can take control of the airline’s operations. This leadership can then plan to restart the airline, which has been grounded for more than a year.
Acting SAA CEO Thomas Kgokolo recently told Business Maverick domestic flights might resume as early as July 2021. Read more here: SAA may be ready to resume flights as early as July – interim CEO Thomas Kgokolo
Kgokolo was appointed in April 2021 with a mandate to oversee the handover of SAA from the rescue practitioners to the interim management and board.
But SAA cannot resume flights until the legal battle with its pilots, the majority of which belong to the SAA Pilots Association, is resolved at the Labour Court in Johannesburg. The pilots, who have been locked out of SAA since December 2020, hauled SAA to court over their outstanding salary payments and conditions of their retirement.
After SAA received a R10.3-billion taxpayer-funded bailout from the government for the rescue, the rescue practitioners said they were “leaving both a solvent and liquid SAA adequately set to continue into the future”.
Of the approved funding for SAA by the government, the rescue practitioners said, to date, the airline had received R7.8-billion for implementation of the business rescue plan, which was approved by creditors on 24 July 2020.
Although the jury is out on whether SAA is now on a sustainable financial and operational footing, a leaner airline has emerged.
Through the business rescue process, SAA’s workforce has been reduced from 4,700 to 1,000 – a move that will cut the airline’s operational costs, especially the remuneration of workers.
The rescue practitioners said a significant portion of SAA’s debt, “that hamstrung” the airline, had been compromised with a majority of lenders or commercial banks agreeing to be paid monies they are owed over the next three years.
Of the bailout from the government, R1.7-billion will go towards paying companies that leased aircraft to SAA.
Aircraft leasing companies could potentially have been owed about R30-billion due to early termination penalties. But a compromise agreement was reached on a payment of R1.7-billion, which equated to a six-month lease payment. Payment of this R1.7-billion to aircraft lessors will be in three tranches, from August 2021, as determined in the business rescue plan.
SAA still faces heavy financial losses. It last turned a profit in 2011 and is still expected to have negative cash-flow over the next five years. The cumulative negative cash-flow position could be R59.7-billion between the financial years 2021 and 2025.
The Department of Public Enterprises (DPE), the sole shareholder of SAA, said the restructuring of the airline was not yet completed and it was working to conclude an agreement with a strategic equity partner (SEP) that will inject money into the airline in exchange for a shareholding. Given SAA’s expected financial losses, it will need a lot of working capital to remain airborne.
“Government is in the final stages of negotiations with the preferred SEP, and a purchase and sale agreement should be concluded in the next few weeks. This will enable capital and much-needed technical and commercial expertise to be brought in to ensure a competitive flag carrier,” said the DPE in a statement. BM/DM