Staff face axe as SAA has less than two weeks’ worth of money left

It is unlikely that the state-run airline will be able to pay salaries after this month as government refuses to hand over more cash – meaning liquidation is all but certain

South Africa’s flagship airline, SAA, has less than two weeks’ worth of money left in its coffers.

According to a proposal contained in a draft document prepared by the beleaguered airline’s business rescue practitioners, Les Matuson and Siviwe Dongwana, each employee will get a week’s salary for every year of service completed; a month’s remuneration in lieu of notice pay; payment for accrued, untaken leave; and a pro rata 13th cheque where applicable.

It is also proposed that the deal will be financed through the sale of specific assets – but it could take some time both to finalise the sale of assets such as land and aircraft components, and to collect outstanding debt.

If the return from these measures falls short, the personnel will not be paid the full amount and will have to queue alongside SAA’s other creditors.

Labour union the National Transport Movement wants employees to be paid at least three weeks of salary for every year of completed service, and that employees older than 55 be given the option of early retirement, with an additional incentive amounting to six months of their salary.

The government itself did not want to liquidate and got business rescue practitioners to do it
Dirk Hermann, the chief operating officer of Solidarity

Trade union Solidarity is still taking legal advice about whether it should advise its members to accept the offer. Other unions had not responded by the time of going to press.

This comes after government halted the flow of money to the grounded airline this week.

Late on Tuesday, Matuson and Dongwana sent interested parties a report, informing them of a letter that they had received from Public Enterprises Minister Pravin Gordhan earlier that day.

In the letter, Gordhan said government would be unable to give SAA any further financial assistance.

That means no money, no guarantees to obtain credit from other financiers and no permission for further international loans.

Although this is widely regarded as the death knell for SAA, Gordhan said Matuson and Dongwana would have to consider their options with the resources they had at their disposal.

The issue has, however, been placed on the agenda of a Cabinet meeting scheduled for next week.

Read: ‘Liquidation only option’ as govt denies SAA funding request – experts

On Friday, Peter Attard Montalto, the head of capital markets research at Intellidex, asked in a research note: “SAA is dead?” His own answer: “Yes, almost. No funding is available from any quarter. The question is: How will it be liquidated?”

According to Montalto, SAA’s low-cost subsidiary, Mango, is not bankrupt and will most likely be sold on an urgent basis, as will be the case with subsidiaries SAA Technical and Air Chefs.

“Government will try to keep hope alive of a new state airline eventually, but the lesson from other countries is that this never happens, and funders will quickly kill that idea.”

In January, FlySafair and Airlink were still interested in acquiring Mango. Comair said it was open to opportunities, without expressly naming Mango.

Since then, the income streams of all airlines have vanished into thin air as a result of the travel restrictions imposed by the Covid-19 coronavirus pandemic.

Montalto points out that, during his budget speech in February, Finance Minister Tito Mboweni had made provision for R16.4 billion to help repay SAA’s debt.

Montalto said National Treasury would most likely be strict in its negotiations with creditors, especially those that leased aircraft to SAA, and would limit the additional cost of liquidation to between R2 billion and R3 billion in doing so.

According to an SAA balance sheet contained in business rescue documentation from March, which Rapport has seen, the airline, over the short term, owes R4.6 billion to Nedbank; just over R1 billion each to Standard Bank, Investec and Rand Merchant Bank; R2.2 billion to Absa; and R1.9 billion to the Development Bank of Southern Africa (DBSA).

This debt is, in all likelihood, guaranteed by government. Other major creditors include Comair, Airlink and SA Express.

Dirk Hermann, the chief operating officer of Solidarity, accused government of having never been serious about the business rescue.

“They brought about a business rescue application out of desperation because they wanted to control the process. They continuously interfered and made it impossible for the business rescue practitioners,” he said.

The report by the business rescue practitioners shows that, shortly after the initiation of the business rescue process on December 5, government failed to live up to its promise to financially support the rescue process

“The condition for business rescue was independence, and the state simply ignored this condition. The state managed the airline into bankruptcy and is now concluding the failure.

"The government itself did not want to liquidate and got business rescue practitioners to do it. Now government is pulling the plug and does not want to accept responsibility.”

The report by the business rescue practitioners shows that, shortly after the initiation of the business rescue process on December 5, government failed to live up to its promise to financially support the rescue process.

Of the R4 billion government initially promised, just R2 billion was forthcoming – and it was a close shave as SAA might have crashed as early as February otherwise.

Thanks to a lifeline from the DBSA, and cost-cutting measures that included cancelling more than 100 routes, the practitioners managed to keep SAA going – but Covid-19 dealt the airline a fatal blow.

Matuson and Dongwana then came up with a plan to keep SAA in care and maintenance until it could resume operations.

In the meantime, the airline has only been conducting special flights to repatriate stranded travellers to their countries of origin and to transport essential freight.

For this, they requested a further R10 billion from government, but this was refused.


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