SAA business rescue: to interfere or not to interfere, that is the question

Should the South African government interfere in the business rescue decisions being made by the duly appointed business rescue practitioners (BRPs) of embattled state-owned airline South African Airways or not?

This seems to be one of the debates that flared up after the BRPs announced earlier this week that, in order to try and make SAA sustainable, certain routes will be cancelled and some frequencies reduced as from the end of February.

Even President Cyril Ramaphosa, on his way to an African Union (AU) meeting in Ethiopia, weighed in on the issue, stating that he is unhappy with the latest plans announced by the BRPs. He indicated that the Department of Public Enterprises would shortly issue a statement in this regard, which indeed was the case.

The Ministry of Public Enterprises then indeed did issue a statement shortly afterwards, saying government is concerned that "recent decisions concerning SAA have caused market and customer uncertainty that may jeopardise the long-term future of the airline". The DPE statement indicated that a review of the BRPs' recent announcement about cancellations and frequency reductions is necessary.

When announcing their latest decisions, the BRPs emphasised that it is aimed at "supporting SAA's transformation into a sustainable and profitable business and in line with the urgent action required to conserve cash". A reliable source told Fin24 that none of the routes cancelled routes are actually profitable.

The union Solidarity is one of the voices that went up to caution against government interference in the business rescue process.

"We are requesting that there will not be any undue interference with the business rescue process," Solidarity's chief operating officer Dirk Hermann, told Fin24 on Saturday. "The business rescue attempt is already very fragile and will fail if government interferes. Our main message to the government is: keep your hands off SAA or you will destroy the business rescue process."

In the view of Solidarity, the SA government, as shareholder of SAA, is actually the cause of the crisis in which the state-owned airline finds itself. It, therefore, believes it is completely irregular for government to interfere with the BRPs' legal mandate and duties.

At the same time, Solidarity called on the BRPs to hurry up and present a proper business rescue plan.

"The uncertainty because of the lack of a formal plan is damaging the trust in the business rescue process. It creates uncertainty among SAA's creditors and workers are feeling uncertain and any talks of job cuts without a plan will create a lot of resistance and will hasten the airline's demise," said Hermann. "The changes in routes without making the formal plan known also creates the impression of a disorganised process."

In his view, another result of the uncertainty created by the lack of a formal business rescue plan having been submitted, is that SAA runs the risk of losing its top skilled employees.

"The aviation industry is very competitive and competing airlines are eager about SAA's top skills. At the same time, we at Solidarity believe it is unnecessary to implement forced retrenchments. We feel it can be done by natural and voluntary processes which will provide workers certainty," he said.

On the other hand, the The South African Communist Party (SACP) is not satisfied with the rights that the business rescue process provides the BRPs in their mandate to try and SAA sustainable. The SACP said in a statement on Friday that it would rather see government intervene in the process "in the national interest".

The party wants the most recent plans announced by the joint BRPS to be "rescinded as a matter of urgency". In a statement the SACP calls for workers' rights to be fully protected while at the same time pursuing the turnaround of SAA.

Ahead of SAA going into business rescue in December last year, Fin24 reported about concerns in the aviation industry that government might try to interfere with the BRPs in the execution of their duties to try and see if SAA indeed can become sustainable.

An international aviation expert, who preferred to remain anonymous, told Fin24 on Saturday that government interference "shows that they do not understand the problem at hand".

"The BRPs are really trying to save SAA, but they must keep a free hand otherwise SAA is not rescuable," he said.

In October last year, before SAA went into business rescue in December, government announced that it would help SAA repay its R9.2bn in government-guaranteed debt over the next three years.

A formal business rescue plan is set to be submitted by the BRPs by the end of the month. At the time of publication, the BRPs did not have a response.


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