Close to the edge of collapse, SAA gets a final chance to continue operation

December 05, 2019: After a series of unfortunate events, and years of operating losses, South African Airways (SAA) is edging towards a total collapse faster than ever. South African government has decided to place South African Airways under a local form of bankruptcy protection as a last measure to prevent its total collapse.

The state-owned airline is entering a business-rescue process to allow a "radical restructuring" under which the carrier will receive 4 billion rand ($274 million) in funding, public enterprises minister Pravin Gordhan said in a statement. The process will allow SAA to continue operating.

"This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner," he stated as reported by Bloomberg.

If liquidated, SAA will need to cover liabilities of $2.4 to $4.7 billion; however, they would only be able to secure $341 to $409 million by selling their assets, as per reports.

Ultimately, amidst the network difficulties and strategic missteps, the crux of the issue crippling SAA is relatively simple: rising costs, debt, and revenues failing to match. Tellingly, since 2017, the airline has opted to stop releasing annual statements; a year in which net losses quadrupled.

SAA, which last made a profit in 2011 and has received 57 billion rand in bailouts since 1994, has been struggling to pay its bills after the National Treasury declined to provide more funds. Its finances took a further hit when staff staged a pay strike last month, grounding a number of flights, insurers blacklisting it and causing bookings to be cancelled on a number of others - costing the airline $3.4 million each day.

The business-rescue process at SAA include:

• Existing lenders to SAA will provide 2 billion rand of "post-commencement finance" guaranteed by the government and repayable out of future budget appropriations to enable SAA to continue to operate.
• The treasury will provide an additional 2 billion rand of funding in a "fiscally neutral manner".
• The full recovery of capital and interest on existing debt provided to SAA by existing lenders that's the subject of existing government guarantees will not be impacted by business rescue.
• A review of the airline's cost structure will be conducted, with a simultaneous effort to retain as many jobs as possible.

"This set of actions should provide confidence to customers of SAA to continue to use the airline because there will not be any unplanned stoppages of flights or cancellation of flights without proper notice should that be necessary," Gordhan said.

SAA spokesman Tlali Tlali said the company's board will announce the appointment of business-rescue practitioners in the near future. "It plans to publish a new provisional flight timetable shortly," he said.

Other labor unions, such as the National Union of Metalworkers of South Africa (NUMSA), have opposed talk of restructuring the airline or selling a stake to private investors. That is in line with most unions in South Africa, which have threatened strikes if the government attempts to reorganise state companies and cut jobs.

Democratic Alliance welcomed the government's decision to voluntarily place the carrier into business rescue, saying this was the only viable option to prevent it from placing any further burden on the economy and taxpayers.

South African Airways employs more than 5,000 workers and operates a fleet of more than 50 aircraft, to more than 35 domestic and international destinations.