SAA to go into business rescue – here’s what happens next

 ·5 Dec 2019

Minister of Public Enterprises Pravin Gordhan has announced that South African Airways (SAA) will be placed into business rescue.

Gordhan said in a statement on Thursday (5 December), that this is the optimal mechanism to restore confidence in the airline, safeguard its good assets, and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner.

“Our desire is that the restructured airline will mark the beginning of a new era in South African aviation and must be able to bring in millions more tourists into South Africa; help create more jobs in tourism and related sectors of the economy and work with other African airlines to underpin and service the integration of African markets and improve dramatically intra-African trade and travel.

“It is also important that the reliance on government finances be reduced as soon as possible and to minimize disruption to SAA services, customers, staff and other stakeholders.”

Gordhan added that business rescue is a ‘well-defined process’ that will allow SAA to continue operating in an orderly and safe manner and to keep planes and passengers flying under the direction of a business rescue practitioner.

The minister said that the business rescue process will include the following:

  • Existing lenders to SAA will provide R2 billion as post-commencement finance (PCF) guaranteed by government and repayable out of future budget appropriations in order for the business rescue process to commence and to enable SAA to continue to operate;
  • Government, through National Treasury, will provide an additional R2 billion of PCF in a fiscally neutral manner;
  • The prevention of a disorderly collapse of the airline, with a negative impact on passengers, suppliers and other partners in the aviation sector in South Africa;
  • The full recovery of capital and interest on existing debt provided to SAA by existing lenders that is the subject of existing government guarantees will not be impacted by business rescue;
  • It will provide an opportunity to critically review the cost structure of the airline, while simultaneously attempting to retain as many jobs as possible. This reality was clearly understood in the recent wage negotiation process between the unions and the company;
  • This approach also provides a structured opportunity to reorganize the state aviation assets in a way in which they are better positioned to be sustainable and attractive to an investment partner.

“It must be clear that this is not a bailout,” said Gordhan. “This is the provision of financial assistance in order to facilitate a radical restructure of the airline.”

“For these reasons, the business rescue process will commence as of 5 December 2019.

“A business rescue practitioner will be chosen to take charge of the business and perform the function of operating the airline with the assistance of management. The practitioner will also undertake such rationalizations as are necessary,” he said.

Liquidation likely 

Commenting on the statement, Intellidex analyst Peter Attard Montalto said that SAA will likely still enter into liquidation.

However, he noted that the additional R4 billion of state and bank money may provide an additional bridge over December.

“The statement is couched in language that a state airline is needed to support tourism – we look through this however as window dressing and an attempt to provide political cover. Overall the clear aim, rightly, is to retain as many sustainable jobs as possible. The statement also highlights that an investment partner is key. ”

“How one sees this then depends on if its R4 billion unnecessarily spent and down the drain or a final R4bn to get it over the line either politically into business rescue onwards to liquidation or into business rescue onwards into recovery.”

Read: SAA to enter urgent business rescue

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