SAA is flat broke, but can be saved

SAA is so bankrupt that its creditors may well end up having to pay in, if it goes into liquidation.

This is according to Les Matuson, SAA’s business rescue practitioner.

He told a large group of SAA’s creditors on Friday that he believed business rescue – rather than liquidation – was the only option.

To add to the airline’s long list of problems, the International Air Transport Association (Iata) wants a guarantee of €60 million (R950 million) by the end of the month, or it will kick the airline out, City Press’ sister publication, Rapport, has learnt.

Neither Iata nor Matuson would confirm this.

Iata manages the payment system that facilitates airline payments and revenues worldwide, and membership is therefore critical for SAA to survive.

On Friday, Matuson told creditors that auditing firm PwC did make a high-level review of SAA’s finances.

And, he said, after holding consultations with government, unions, Iata, financiers and legal advisers, he believed that it would be possible to save the airline.

It was PwC’s study that showed how disastrous a liquidation process could be.

“SAA leases most of its aircraft,” Matuson said, which means there are few assets.

According to him, these assets would not even cover the claims of the preferential creditors.

“If you register a claim, you may be expected to contribute to costs,” he warned creditors.

None of the creditors present objected to the continuation of the business rescue process.

Even the scant figures provided to creditors made it clear just how grim SAA’s situation is.

SAA last published financial statements in 2017. Since then, its finances have been kept a closely guarded secret.

• According to the latest documentation, SAA owes third parties about R20.4 billion. In 2017, the airline owned assets of just R15.6 billion.
• According to the latest statements - up to March 2017 - SAA still had a turnover of R30.7 billion. But the new documentation, which was made available to creditors, shows that the annual turnover has plummeted to R23.8 billion.
• Even though Vuyani Jarana, the airline’s former chief executive officer, told MPs he was committed to reducing personnel numbers, this initiative seemingly bore little fruit. According to the 2017 annual report, SAA had 5 752 employees. The new documents show that there are currently 5 421 employees.

Cloete Murray, another business rescue practitioner involved in the project, also believes SAA could be saved.

However the airline was being suffocated by provisions of the Public Finance Management Act (PFMA), says Murray.

SAA has to comply with these provisions because it is a state-owned company.

Not only do the government’s requirements for preferential procurement, for example, lead to additional costs for SAA, but they also stop the airline responding as quickly as its competitors.

Murray – whom the trade union Solidarity named as its preferred business rescue practioner in its court application to have SAA placed in business rescue – gave an example of such an instance involving Jarana.

He said Jarana wanted to appoint an international consultancy firm to investigate certain aspects of SAA’s operations. When he finally got the go-ahead from National Treasury eight months later, the opportunity had passed.

Murray said the need to save SAA would take priority over PFMA compliance during business rescue.

The SAA employment figures were also not as high as people thought, he said.

“If you strip out the staff of Air Chefs and SAA Technical, the number of staff members per available seat does not compare all that badly with that of other airlines,” he said.

Matuson has asked the creditors for a postponement with regard to publishing the business rescue plan, due on January 13, to January 28.

The act makes provision for such a postponement to be granted if the creditors agree.

He said various possible scenarios were being modelled and stress tested, before the plan could be finalised.

However, the successful rescue would be dependent on obtaining post-commencement financing.

SAA’s existing financiers have already provided R2 billion, but the R2 billion promised by government has not yet been paid.

Matuson announced that he and Siviwe Dongwana, who was appointed as co-practitioner on Thursday at the request of SAA’s financiers, have appointed the international group Alvarez & Marsal to examine the airline’s operations.

Juliette de Hutton, an associate at law firm Bowmans, was appointed as independent chairperson of the committee of creditors.

Matuson and Dongwana will report on the rescue process monthly.

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