The business rescue of SAA is proceeding in the strangest manner.
The business rescue practitioner has not been provided with the cash that was promised to fund the rescue process, a form of bankruptcy protection that places a company in the hands of an administrator to rehabilitate its finances.
While R4bn was promised — R2bn to be raised by banks and repaid by the Treasury by June and R2bn to be provided by the Treasury in a “fiscally neutral way” — only the first half of the money has materialised. That money is now depleted and SAA is flying on a wing and a prayer, in the hope that public enterprises minister Pravin Gordhan will be able to strong-arm the Treasury into coming up with the money.
Though he took several years too long in taking the decision to move SAA into business rescue, Gordhan has been the driving force behind the government’s attempts to save the company. He is driven by the noble intention to save the 10,000 jobs at stake should the airline close. Though the air traffic demands would likely quite readily be taken up by other airlines, the aviation sector would shrink should SAA close.
As the Airports Company SA, Air Traffic and Navigation Services, SA Weather Service and SA Civil Aviation Authority all rely on fees from SAA, their sustainability would be much affected by a smaller or scaled-down SAA. Technical skills SA has held onto in aviation would also be lost should subsidiary SAA Technical go out of business.
Business — in terms of flight frequencies, routes and staff costs — has hardly been altered, except for a consolidation of 28 domestic flights with Mango and the cancellation of one international route, on Tuesday
While it is certainly not an easy matter to let SAA fail, and for jobs, skills and technical capacity to be lost, the government has not played a straight game with the business rescue practitioner, the employees, SAA customers or the creditors, who did their bit by putting in additional capital. This is clearly because one part of the government does not agree with another.
While the business rescue practitioner is still putting stock in the promises made by Gordhan, the reality is that when asked about the missing R2bn, finance minister Tito Mboweni shrugged, said he is doing his best and then caught a Swiss Air Airbus to the Davos summit. There has been no indication from his department about why the promised money has not materialised and whether it will.
The second odd thing is that the practitioner is yet to meaningfully restructure any of SAA’s operations to slow down the rate at which the company is burning cash. Judging by earlier statements by the Treasury on a conservative estimate, before its rescue, SAA was losing R500m a month. But business — in terms of flight frequencies, routes and staff costs — has hardly been altered, except for a consolidation of 28 domestic flights with Mango and the cancellation of one international route, on Tuesday.
Tuesday’s cancellation of some flights took place less than 24 hours after the practitioner and SAA said no flights would be suspended and operations would continue as usual. SAA also did not announce the measure in advance: the news came from a tweet by a local travel agent, to say that flights were being cancelled.
SAA has cancelled a number of domestic and international flights to conserve cash. Business Day TV spoke to independent aviation economist Joachim Vermooten about his views on the latest development at the struggling airline.
The result of such haphazard communication can only cause trust in SAA to plunge further and forward sales to dry up.
It would have made more sense for the practitioner to have stepped in at the start of proceedings to formulate an operational plan that would stem the losses. That has not happened and as he has also communicated very little, we can only guess at his thinking.
All in all, it is hard not to wonder whether the way the business rescue process is unfolding is in the best interests of the company or whether a political decision is once again making the most rational course of action more difficult to find than it should be.