SAA must go into business rescue, Ramaphosa orders

President Cyril Ramaphosa has decided that cash-strapped flag carrier South African Airways must go into voluntary business rescue, according to a letter signed by presidency director-general Cassius Lubisi.

The letter, dated December 4, says Cabinet initially adopted an approach that entailed restructuring the struggling airline. However, it adds that "developments have now necessitated a change of approach" to address the "dire situation".

"In this regard, SAA will have to urgently go into voluntary business rescue," it says. 

Speaking to Fin24 on Wednesday night, SAA spokesperson Tlali Tlali did not comment on the letter itself, but directed Fin24 to its authors. Fin24 has been told by a senior government source that a formal statement was going to be issued on Wednesday night.

Business rescue, under 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.

'First in the door'

Trade union Solidarity announced in November that it had launched a court bid to have the cash-strapped airline placed in business rescue, as Fin24 previously reported. SAA had earlier said it intended to oppose the application.

Solidarity's chief operating officer, Dirk Hermann, told Fin24 on Wednesday evening that a meeting had been scheduled between the legal teams of Solidarity, SAA and government ministers on Thursday morning to discuss the case and a possible court date. The meeting is expected to take place under the guidance of Deputy Judge President Phineas Mojapelo. 

According to Hermann, in terms of the legal processes that govern business rescue proceedings, it is not just up to SAA or the government to declare they are going to institute voluntary business rescue, as Solidarity was “first in the door” with their application. He said the union does not intend to withdraw it.

In a separate statement issued on Wednesday evening, Hermann said the government's decision was not voluntary, but was taken in reaction to the union's earlier application. “They are probably now trying to obtain control over the process after they realised that Solidarity will succeed,” he said. 

Phakamile Hlubi-Majola, spokesperson for the National Union of Metalworkers of South Africa, said on Wednesday evening that the union would respond to the announcement on Thursday. 

ANC national spokesperson Pule Mabe told News24 he would respond to questions on Thursday.

The DA, meanwhile, issued a statement on Wednesday evening saying the party was pleased that "sense [had] finally prevailed" regarding the airline. 

Parliament's oversight committee on public accounts, which was set to meet with the airline's leadership on Thursday, welcomed the business rescue announcement. "The committee has been informed that this is the only viable route to avoid an uncontrolled implosion of the national airline. Scopa is made to understand that an administrator will move in and the board will effectively not be in charge," said its chairperson Mkhuleko Hlengwa in a statement. 

'Radical restructuring'

Minister of Public Enterprises Pravin Gordhan, in a statement issued on Thursday morning, said business rescue was the "optimal mechanism to restore confidence in SAA".

On Sunday he announced that the airline would go through a "radical restructuring process" to ensure its financial and operational sustainability, without providing further details. 

Gordhan previously said that a weeklong strike in November by members of Numsa and the SA Cabin Crew Association had "caused immense damage to the reputation, operations, and the deterioration of the finances of SAA". SAA previously said the strike had cost it an estimated R50m per day.

Numsa has denied the strike crippled the airline, arguing the state-owned entity was already in dire straits and the industrial action was, in part, initiated to force the airline to improve its governance. 

On Thursday last week travel group Flight Centre South Africa said it had made a decision to stop selling SAA tickets, citing "ongoing concerns" about the airline's financial stability and the unwillingness of their travel insurance providers to continue covering it. Both Santam and Hollard insurance later said they had withdrawn insolvency cover benefit on SAA tickets.

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