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Public Enterprises Minister Pravin Gordhan has announced that the SAA board has adopted a resolution to place the company into business rescue.
In a statement in the early hours of Thursday morning, Gordhan said the decision was supported by government and would help to restore confidence in the airline.
“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,” Gordhan said.
He added that the restructured airline should mark a “new era in South African aviation” and bring in millions more tourists to the country as well as create more tourism jobs.
“It is also important that the reliance on government finances be reduced as soon as possible and to minimise disruption to SAA services, customers, staff and other stakeholders,” he added.
Business rescue would hand over control to a specialised practitioner who then tries to restore the company in order to avoid liquidation, usually by making substantial cost cuts.
Chapter 6 of the Companies Act allows South African companies in “financial distress” or trading in insolvent circumstances to file for business rescue.
Once a resolution has been adopted, a business rescue practitioner is appointed to reorganise and restructure the business.
SAA, which has not made a profit since 2011 and is dependent on government bailouts to remain solvent, suffered a crippling strike last month which forced it to cancel hundreds of flights and pushed it to the brink of collapse.
But Gordhan said business rescue would allow SAA to continue operating in an “orderly and safe manner”.
In order for the business rescue process to commence and to enable SAA to continue to operate, the minister said existing lenders would provide R2 billion as post commencement finance, guaranteed by government and repayable out of future budget appropriations.
And government, though National Treasury, would provide an additional R2 billion of post commencement finance in a fiscally neutral manner.
The business rescue process, according to Gordhan, would “provide an opportunity to critically review the cost structure of the airline, while simultaneously attempting to retain as many jobs as possible”.
He emphasised that this was not another bailout.
“It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructure of the airline,” Gordhan said.
The business rescue process will commence as of Thursday and a business rescue practitioner will be chosen to take charge of the business and perform the function of operating the airline with the assistance of management, he added.
Gordhan’s department will also meet urgently with the business rescue practitioner, unions and other stakeholders.
“This initiative demonstrates that government will undertake the necessary bold steps in order to reposition its assets in such a way that they do not continue to depend on the fiscus and thereby burden taxpayers,” Gordhan said.
On Wednesday night, a letter was sent by the secretary of the cabinet, Cassius Lubisi, to ministers and deputy ministers to inform them of the decision.
The letter stated that the only “viable route” was for SAA to “urgently” go into voluntary business rescue to avoid an “uncontrolled implosion of the national airline”.
Read: SAA to go into urgent business rescue to avoid ‘implosion’
The DA welcomed the move on Wednesday night, saying it was pleased that “sense has finally prevailed”.
“If business rescue is awarded then it will take control of SAA out of the hands of the ANC,” DA MP Alf Lees said.
“The business practitioner who is appointed must take robust action to immediately cut costs at SAA without any interference from the ANC. The DA will monitor this very closely in order to ensure that the ANC keeps its distance.”
Some economists also welcomed the government’s tougher stance on SAA, saying it could help avert another credit rating downgrade to “junk” status.
- Additional reporting by Reuters and Fin24
