- Creditors of the embattled airline will finally get to vote on a proposed business rescue plan next week.
- No matter how unions, unsecured concurrent creditors and lessors decide to vote, the biggest voting block is formed by four major banks.
- The banks hold R16.4 billion in secured government-guaranteed claims which have to be paid no matter what happens to SAA and the rescue plan.
No matter how employees, concurrent creditors or lessors of flag carrier South African Airways decide to cast their votes on the airline's proposed business rescue plan next week, in reality the ultimate decision lies with its secured lenders, namely Investec, Nedbank, Absa and Standard Bank.
Together the four banks form the largest voting block, and collectively hold government-guaranteed claims totalling R16.4 billion for historic debt incurred by the airline. This money has already been allocated in previous national budgets, and must be paid out regardless of what happens to SAA.
SAA went into business rescue in December last year following years of losses and repeated state bailouts. The airline's business rescue practitioners published their rescue plan earlier in the week after repeated delays. A vote has been scheduled for Thursday, June 25, the day after Finance Minister Tito Mboweni tables his emergency budget.
"So, due to the government guarantees they hold, the banks will receive full payment. In terms of the plan the Department of Public Enterprises will retain 100% of SAA, and the concurrent creditors will forfeit billions to save a hopelessly insolvent airline with no prospects of business success going forward," a creditor, who asked to remain anonymous, told Fin24 on Thursday.
Nedbank responded that, due to banker-client confidentiality, it is not able to comment at this stage. Investec also said that it is unable to comment. Standard Bank and Absa were also approached for comment, but at the time of publication had not yet responded.
A draft rescue plan for the airline submitted to creditors two weeks ago forecast a loss for the airline of more than R20 billion over the next few years. The plan finally published to be voted on, in contrast, foresees a smaller loss of R6.4 billion. But under the plan, SAA is still expected to continue to be "commercially insolvent" after the business rescue process.
In contrast to the draft proposal, the plan to be voted on next week breaks down concurrent creditors into three separate classes, namely
- concurrent creditors (7.5 cents in the rand totalling R600 million allocated to them);
- passengers with un-flown tickets (R3 billion allocated to them); and
- lessors (R1.7 billion allocated to them).
The plan also now includes money allocated to SAA subsidiaries, including R1 billion to Mango.
More funding needed
The rescue plan still remains conditional to additional government funding of more than R10 billion. In April, government denied the practitioners any further funding for the business rescue process, saying there was no more money available from the fiscus.
However, during a later briefing to Parliament, Public Enterprises Minister Pravin Gordhan hinted that there might be some funding from government if a rescue plan acceptable to government were proposed. Gordhan also indicated government will try to find a strategic equity partner for the airline. So far neither the Department of Public Enterprises nor the practitioners have been able to obtain a suitable equity partner.
According to the business rescue practitioners, if there are disagreements on the plan, the reasons for the disagreements will determine what happens after the vote. If creditors want more information, they may give the practitioners an extension to obtain it.
However, if the creditors are "just not happy" with what is being offered, the practitioners say they will have no choice but to "discharge" the business rescue, as there will be no reasonable prospect of dealing with what is owed to creditors in the process. Once the practitioners "discharge" the rescue, the creditors can apply for a liquidation.
Government and union reservations
Government, as sole shareholder of SAA, seems to still have some reservations about the plan.
In a statement following the publication of the plan earlier this week, the DPE expressed concern that the plan "might still not be adequate". It also indicated that it wants the practitioners to "embrace" a consultation forum established by Gordhan to engage with labour on their vision for SAA going forward and how it can be done in a sustainable way.
The DPE and the unions have been working on creating such a plan but to date nothing has been finalised.
As has been stated by Gordhan repeatedly in the past, government's aim is to try and establish a sustainable, competitive airline that provides integrated domestic, regional and international flight services. The role the airline must play in terms of development and sustaining jobs is seen as important too.
But this dual mandate for the airline is the very reason why it has struggled to operate sustainably in the past, in the view of some aviation experts Fin24 has spoken to.
In its statement in reaction to the plan, meanwhile, the DPE said that corruption and poor leadership created a "tide of wastage, an excessive cost-structure and cash burn". At the same time, the department acknowledged the constrained fiscal environment and devastating impact of the Covid-19 pandemic on the airline industry.
In the view of aviation expert Linden Birns, managing director of Plane Talking, the rescue plan will remain "a paper exercise" until Treasury approves funding. In his view, it is no small coincidence that the meeting for creditors to vote on the plan is set for the day after Mboweni will announce his emergency budget.
For Birns, the assumptions on which revenue returns projected in the plan are based remains a huge question, as no one can really tell where the airline industry is going after the pandemic is over.
SAA will also be impacted by the weaker rand on its dollar-based fixed costs like leasing, as well asadditional costs related to hygiene measures related to Covid-19 protocols.