Draft proposals to restructure South African Airways (SAA) into an entirely new operation would see the government committing additional funds, and would include the new company acquiring all of the airline’s assets.
The plan, forwarded to media by the Democratic Alliance (DA), details how the government would have to start a new company owned by the Department of Public Enterprises (DPE).
The draft business rescue plan envisages the “new SAA” to fall under a new holding company called “New HoldCo” which shall also oversee SAA City Centre (SACC), SAA Technical, Air Chefs, and Mango airline.
The DPE would have to put down approximately R2 billion in starting capital to get this company off the ground, with an additional R2 billion needed to settle retrenchment processes with workers.
Over the longer term, the government would also have to allocate R16.4 billion towards the payment of SAA’s lenders, and a further R600 million for the payment of concurrent creditors.
SAA’s business rescue practitioners (BRPs) note in the plan documents that it is still very much a draft, with consultations with various stakeholders – including government, labour and lenders – still ongoing.
The release of the draft plan comes after months of delays relating to the business rescue process, largely due to the Covid-19 pandemic which scuppered original plans through shutting down all flights in the country, and government’s decision to pull funding support from the airline.
Following these events, the administrators said SAA was left with two options – either to wind down, or to liquidate. However, government intervention pushed the BRPs to come up with an alternative plan to restructure.
In follow-up statements on the process, the administrators said that there are reasonable prospects to save the airline, so long as they get “unequivocal commitment” and “the requisite funding” from the government.
The draft plan has already been met with criticism.
According to the DA, the BRPs are projecting that the “new SAA” will trade at massive losses totalling R19.9 billion for the first three years. These losses exclude trading losses by Mango, SAA Technical, Air Chefs, and SACC subsidiaries which are also likely to rake up tens of thousands or even billions of rands in losses, it said.
This comes after SAA failed to produce any profits since 2014.
“If this draft business rescue plan is approved in its current form, SAA will continue to be a fiscal black hole for years to come,” said the DA member of the Standing Committee on Public Accounts, Alf Lees.
“The only credible course of action for the BRPs is to apply to court for the liquidation of SAA as is required by Section 81 of the Companies Act,” he said.