JOHANNESBURG/CAPE TOWN (Reuters) – South Africa’s government will cede control of the national airline to a restructuring specialist in a last-ditch attempt to save the cash-strapped business from collapse.
A passenger waits to be served at the South African Airways customer desk, at the O. R. Tambo International Airport (ORTIA) in Kempton Park, South Africa, October 22, 2019. REUTERS/Siphiwe Sibeko/File Photo
As part of a rescue plan started on Thursday, the government will hand the running of South African Airways (SAA) to business rescue practitioner Les Matuson to make the sort of painful cuts that would be difficult for politicians to push through.
SAA has been granted a 4 billion rand ($272 million) lifeline from the government and banks to launch the rescue plan, but that cash could only last for months, analysts say.
The airline has been on the brink of collapse since a crippling strike last month left it without enough money to pay salaries on time. Then two major travel insurers stopped covering its tickets against the risk of the company becoming insolvent.
SAA employs around 5,000 people, while the wider SAA Group, including maintenance and catering units, employs around 10,000.
The airline, which has not made a profit since 2011 and has received more than 20 billion rand of government bailouts over the past three years, said it would publish a new provisional flight schedule soon.
Airport staff at Johannesburg’s OR Tambo airport said there hadn’t been much disruption to SAA’s timetable so far, but many travellers were pessimistic about its prospects.
“I think SAA is doomed already … We shouldn’t be paying out of our own money. That money should be coming from somewhere else,” said Alicia Knoetze, 34, travelling to Zimbabwe.
Others said having a national airline was a point of pride.
Public Enterprises Minister Pravin Gordhan said the business rescue process was the best way to rebuild SAA into a stronger entity. He said the plan was to attract an equity partner later.
The Communist Party, a key ally of the governing African National Congress party, said it was disappointed with the decision and wanted a “state-led turnaround process”.
Trade unions, also deeply suspicious of moves that could weaken the role of the state in the economy, said they were consulting members before commenting.
Under Thursday’s plan, it will be business rescue practitioner Matuson, rather than the government as SAA’s shareholder, who will decide the future of the airline.
SAA board member Martin Kingston told Reuters SAA had been days away from being shut down before the board decided on Wednesday to place the airline in a business rescue process, after a “massive erosion of confidence” related to the strike.
The restructuring expert will aim to either return the airline to solvency or maximise value for its creditors.
Interim Chief Financial Officer Deon Fredericks said in a televised interview with news broadcaster eNCA that in an initial discussion with Matuson, he already had a review of the first payments that SAA will make to critical creditors.
“There is a view that within 25 days there could be a full draft plan and discussions will then take place with creditors,” Fredericks said.
Matuson has almost 35-years of experience in the field and has worked on some of the largest corporate restructures in South Africa, according to his firm’s website.
Banks have promised to give SAA 2 billion rand of loans guaranteed by the government to launch the process, with the government providing a further 2 billion rand in what Gordhan termed a “fiscally neutral manner”.
SAA’s government-guaranteed debt, mainly held by local banks, will not be subject to writedowns in the business rescue process, but analysts expect other creditors to suffer losses.
SAA said the process sought to provide the best prospects for selected activities to continue operating successfully.
Guy Leitch, editor of SA Flyer magazine, said business rescues often failed because they were left too late.
He added the rescue would probably require more than 4 billion rand and was sceptical officials would continue to fund it since they would have limited say in its outcome.
Hans Klopper of BDO Business Restructuring said the rescue process could take months if not years and a relatively small amount of SAA’s assets could be recoverable.
“If there aren’t willing patrons prepared to book flights then the bottom falls out of the whole business,” Klopper said.
($1 = 14.7075 rand)
Additional reporting by Joe Bavier; Editing by Tim Cocks, Mark Potter and Alexandra Hudson