EDITORIAL: A last chance to save SAA
Putting the airline in business rescue is the only way it might survive with as little damage as possible
There is no question that business rescue is the best available option for SAA.
This way the damage to the company, which was losing future sales due to uncertainty about how long it would be able to continue operating, will hopefully be arrested. The damage to 10,000 employees spread over the airline and subsidiaries will also be better contained. Had the airline gone into sudden liquidation they would have been without jobs overnight and sent to stand in the queue with other creditors.
The banks, which have R9.2bn in outstanding debt, will also be reassured by this option. The department of public enterprises has said that the commitment to repay this debt in full, announced in the medium-term budget policy statement, still stands.
And, most importantly, from a fiscal stability point of view, a line will now be drawn under the recurrent bailouts for SAA, and taxpayers can be assured that no more tax will be vanishing down that hole.
But for business rescue to even be an option, working capital is required. It means therefore one last allocation of R2bn from the Treasury as well as another R2bn from the banks, which will be backed by a government guarantee. This is in addition to the R2bn that has already flowed to SAA during 2019, which was allocated from the contingency reserve.
Fortunately, SAA has an existing guarantee framework so the new guarantee from finance minister Tito Mboweni will not add to SA’s contingent liabilities. It is also fortunate that in the medium-term budget policy statement, the Treasury had pencilled in R11.2bn for SAA over the next three years. This was mostly to cover the R9.2bn but an extra R2bn was also put on the table.
We are now assured of an orderly and urgent restructuring of the business, which is in everybody’s interest. The big question is whether it will it work.
SAA has a cash burn rate of R500m every month. The funding above has been projected to last the airline until the end of 2019/2020. This means the business rescue restructuring will need to be very, very swift. There is a narrow window before SAA will be back in the same situation, burning cash it does not have.
As things in SA typically proceed at a pedestrian pace and then grind to a halt for three weeks over Christmas and New Year, an exception will need to be made. The board of SAA, which will appoint the business rescue practitioner, as well as trade unions, creditors, banks, suppliers and the government should all be highly aware of this danger and insist on the utmost urgency.
The business rescue practitioner will need to bring an immediate and ruthless approach to cash management.
If SAA is to survive after March 2020, it will need to preserve cash. Since SAA has been in turnaround, R500m has been shaved off the annual procurement budget as inflated contracts are weeded out. By all accounts — public enterprises, management and the board and trade unions — there is a great deal more that can be done. The rot and the wastage and the undisciplined approach to spending that prevails in state-owned companies have not been sorted.
There is also scope to bring discipline to SAA’s subsidiaries as well as strategic equity partners. SAA Technical, in particular, needs urgent attention. As it carries out all of SAA’s maintenance, improved efficiencies can save the group significant cash. New Zealander Adam Voss, who came in in July, has already started cleaning up theft, fraud and chronic disorganisation.
In addition to Voss, other recent appointments to the companies in the group are reasons for optimism. Chief commercial officer Philip Saunders has been hugely impressive and was responsible for helping SAA get through the strike. Nico Bezuidenhout, the former CEO of Mango, has been lured back to the company. Bezuidenhout has a solid track record and understands the company well.
This is SAA’s last chance after many botched and missed opportunities to restructure over the past decade. It is worth giving it a very good shot. Hopefully it is not too late.