South African Airways has been struggling for years (they haven’t turned a profit since 2011), and things have only gotten worse in recent weeks, as the airline has been on the brink of liquidation. SAA was going to restructure and lay off about 1,000 employees, but then employees went on strike, so they backtracked on that.
Well, it looks like we now know what’s next for the airline… kind of.
South African Airways Enters Into “Business Rescue”
South African Airways’ Board of Directors has announced that the airline has adopted a resolution to place the company into “business rescue” at the earliest opportunity, which was a unanimous decision.
This comes after consultations with the Department of Public Enterprises (DPE), as they’ve been trying to find a solution for SAA’s financial challenges. The goal is to create a better return for the company’s creditors and shareholders than any other viable option.
It’s stated that the airline is aware that this “presents many challenges and uncertainties” for staff, and that the company will engage in targeted communication and support for all employee groups during this difficult time.
The airline plans to operate a new provisional timetable, and will publish details shortly.
What Exactly Is Happening Here?
The announcement as such is pretty vague. Should we expect that it’s business as usual and yet another bailout from the government, or…?
With this procedure, a specialist practitioner will take control of the company, and the goal is to maximize the odds of survival for the company, or at a minimum to achieve a better return for creditors than if the company had just outright liquidated.
The government notes that the business rescue plan will incorporate the following:
- 1. Existing lenders to SAA providing R2 billion as post commencement finance (PQF) guaranteed by the government and payable out of future budget appropriations in order for the business rescue process to commence and to enable SAA to continue to operate
- 2. Government, through National Treasury, providing an additional R2 billion of PQF in a fiscally neutral manner
- 3. The prevention of a disorderly collapse of the airline, with a negative impact on passengers, suppliers and other partners in the aviation sector in SA
- 4. 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
- 5. 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 really was clearly understood in the recent wage negotiation process between the unions and the company
- 6. 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
Maybe I’m just a skeptic, but something tells me it’s going to be business as usual.
The company is getting about 270 million USD. But what’s really happening beyond that? They’re gong to “critically review the cost structure of the airline” and also “retain as many jobs as possible?”
I appreciate the sentiment, but it just doesn’t seem like they have concrete plans that are any different than in the past.
Bottom Line
The concept of a “business rescue,” and someone being appointed to turn the company around, sounds great on paper. That being said, I feel like a whole lot of nothing is going to happen.
If there’s one thing we’ve seen over and over at unprofitable state owned airlines, it’s that governments keep injecting money and airlines simply don’t change.
I just don’t believe that the government is willing to make the tough decisions to turn the company around, which could include laying off lots of employees, grounding quite a bit of the fleet, etc.
And the government may not even be wrong for just keeping the airline around as is (at least in comparison to letting them go out of business), because the airline may still be a net-positive for the country in terms of the access it provides to South Africa, and the correspondingly positive economic impact.
Do you think this SAA “business rescue” situation will be any different than the company’s past bailouts?
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