Will coronavirus put SAA in a terminal tailspin?
Business rescue practitioners have already announced the need to restructure SAA and retrench workers. But will fallout from the coronavirus see government pull the plug on the ailing airline?
SAA may just be at the centre of a perfect storm. Given existing financial woes and doubts over the airline’s status as a going concern, coupled with the impact of newly imposed travel bans by the government, the big question is whether it can survive the onslaught.
The FM understands that SAA and its business rescue practitioners, Les Matuson and Siviwe Dongwana, are in crisis meetings after the declaration of a national state of disaster by President Cyril Ramaphosa this week.
By the time of going to print, neither the business rescue practitioners nor SAA had responded to the FM’s questions on where the Covid-19 crisis leaves the airline, which has accumulated R26bn in losses over six years and was placed into business rescue last year.
Travellers moving through SA’s airports have likened the eerie quietness to Christmas Eve: the airports are empty, and there are none of the usual queues — or the buzz — one is usually confronted with when flying domestically or internationally.
Airlines across the globe have cut flights due to decreased demand as a result of the pandemic. Many are feeling the financial pinch, requesting bailouts from their governments.
In SA, Ramaphosa on Sunday announced sweeping measures to combat the spread of the virus.
SAA is unlikely to be spared the bloodbath in the international aviation industry
A travel ban has been imposed on travellers from high-risk countries — Italy, Iran, South Korea, Spain, Germany, the US, the UK and China — and visas previously issued to travellers from those countries have been revoked.
South Africans have also been advised to not travel to or through the EU, US, UK and other high-risk countries.
SAA is unlikely to be spared the bloodbath in the international aviation industry.
Since placing the airline in business rescue, Matuson and Dongwana have already introduced a number of measures, such as cutting some domestic, regional and international routes, in a bid to cut costs.
Last week they announced that they would also be restructuring the airline, issuing a section 189 notice of intention to start retrenchment consultations, in line with the Labour Relations Act.
Matuson and Dongwana said the situation had deteriorated in recent months, leading to a decline of R1.3bn in revenue while costs remained flat.
Since late 2019, the airline has had to endure delays in getting funding, its planes have been grounded by the regulator, and it had to weather an eight-day strike. Then, when it was placed in business rescue, it lost insolvency cover.
Matuson and Dongwana believe SAA needs to make urgent structural and economic changes to avoid liquidation.
The FM understands, based on the section 189 notice issued to employees, that the airline is planning to cut about 2,000 of about 4,700 jobs. This would be in line with one of the three options put together by the business rescue practitioners in January 2020, and seen by the FM.
The three scenarios are restructuring the airline, which will mean job losses; closing SAA and retaining only its subsidiary, low-cost carrier Mango; and liquidation of the airline.
What it means:
The state may give up the fight for the troubled carrier as it seeks to fund Covid-19 disaster management
Restructuring SAA will cost about R7.7bn and allow the airline to retain 2,027 jobs. An amount of R5.2bn will go to one-off costs and retention of potentially surplus staff during the consultation process. The remaining R1.5bn is to fund the business, and includes R900m that will go towards preserving the value of SAA’s subsidiaries — Mango, SAA Technical and Air Chefs — which would have a combined potential value of R1.5bn-R3bn after restructuring.
A second version of the restructuring plan is more radical, with fewer routes, aircraft and staff. The funding required for this would be much the same.
But things have changed since the business rescue practitioners’ announcement last week, and the government now needs to start funnelling money to disaster management.
Finance minister Tito Mboweni on Monday said money to implement the government’s plan to contain Covid-19 will be made available immediately from the national disaster fund. But as the situation develops, he said, further funding will need to be made available — which means the government will need to shift funds around.
Meetings are now being held across sectors to explore options.
At a National Economic Development & Labour Council meeting on Monday, it was proposed that funding be cut to noncritical state-owned enterprises such as SAA to free up resources for fighting the virus.
While there is no agreement yet on what to do, it’s clear that it’s not business as usual in SA. Which means the government may have to reconsider whether it’s worth saving SAA — often described as a vanity project — and rather move the money from its rescue plan to help curb the spread of the virus.