SAA rescue process in apparent limbo, with no sign of funding

No deadline seems to have been set for government to come up with funding to implement SAA's rescue plan.
No deadline seems to have been set for government to come up with funding to implement SAA's rescue plan.
Silas Stein/picture alliance via Getty Images
  • There is currently no indication from the rescue practitioners or government that the funding to implement SAA's rescue plan has been "mobilised".
  • In a retrenchment notice to SAA employees, the practitioners warn that, if a change at SAA does not take place without delay, there is a real risk of liquidation.
  • It raises the question of how long the rescue practitioners plan to give government the leeway to come up with the funding.

It has been a week since the business rescue practitioners of South African Airways (SAA) informed affected parties in a notice on 28 July that all the conditions in the business rescue plan had been fulfilled.

The notice further stated that this meant no creditors' meeting had to take place on 30 July and the practitioners indicated that they were currently finalising remaining outstanding administrative issues before filing a notice of substantial implementation of the rescue process as required by the Companies Act.

Yet, there has been no indication from the rescue practitioners, the Department of Public Enterprises or National Treasury since then that the necessary funding to implement the rescue plan has been obtained - or "mobilised" as committed to by the DPE and Treasury in a letter, which was part of the conditions of the rescue plan.

The letter did not give a deadline for "mobilising" the funds, nor does the rescue plan itself seem to indicate a further deadline to determine by when such funding has to be "mobilised".

Limbo

In essence, that, therefore, means SAA's business rescue process is in limbo for the moment. It also raises the question of how long the rescue practitioners plan to give government the leeway to come up with the funding; how long can be deemed reasonable, and when could one start raising the question of whether the practitioners are acting responsibly in terms of the legal process required for business rescue.

Already, in a section 189 retrenchment notice issued to SAA employees more than two weeks ago on 18 July, and seen by Fin24, the practitioners warn that, if a change at SAA does not take place without delay, there is a real risk of the company failing completely and being placed into liquidation. In the event of liquidation, all employees would lose their jobs.

The rescue plan requires about R10.3 billion in additional funding to implement the rescue plan, but it is not clear where this will come from, and so far government has only committed to "mobilising" funds. The most crucial amount to start off with would be about R800 million for post-commencement creditors, about R2.2 billion for voluntary severance and retrenchment packages as well as about R2 billion for working capital.

The rescue practitioners make it clear in their section 189 letter to employees that SAA, as it currently operates, is not financially and economically viable and the business requires a drastic change to save costs, increase efficiencies and thereby allow the company to operate on a sound business basis.

Exception of flight deck crew

The letter further states that, with the exception of the flight deck crew (namely pilots) employees will be selected for positions within the new structure on the basis of longest service, subject to skills, qualifications and experience in respect of the job categories indicated and taking into account employment equity objectives.

Of the current 4 661 jobs, 1 000 will exist in the restructured organisation either on different terms and conditions to those currently existing, or as new jobs created by the restructuring which do not currently exist. The letter makes it clear that the success of the proposed restructuring plan is dependent on the availability of funding to support the plan.

If the proposed restructure is implemented, it is anticipated that 1 000 employees will be retained and 1 000 will be placed in a temporary training lay-off scheme for 12 months. Voluntary retrenchments are provided for in terms of the plan too - if the necessary funding becomes available.

It is estimated that likely 21 management positions, 449 pilots; 953 cabin crew and 1 296 ground staff might be retrenched.

The letter proposes applying last in first out subject to skills, qualifications, and experience in respect of the job categories indicated. In addition, to properly address historic imbalances connected to certain collective agreements which entrench benefits associated with seniority, the company proposes to evaluate such outcomes having regard to an employment equity override which ensures equitable representation by black, female and disabled employees.

Consultation process

The consultation process will end on 16 September 2020, but since the company is currently faced with significant cash flow and funding challenges, the practitioners propose that an attempt is made to finalise consultations by 16 August.

The letter indicates that, over the past five years, SAA has made cumulative losses of R23 billion. Revenue dropped by R884 million for the three months from November 2019 to January 2020, compared to the same period the previous year. That was even before the devastating impact of the Covid-19 pandemic.

Legal position

According to Hugo Pienaar, a labour law expert at Cliffe Dekker Hofmeyr Attorneys, the criteria of "last in first out" (LIFO) is mostly used for lower level employees.

Other criteria may be applied for more senior employees, for example, setting up an independent panel to determine who the most suitably qualified employee was.

"You may have different criteria in the same retrenchment, provided it is agreed on or applied in an objective and fair manner. Overall, it should be objective and fair," explains Pienaar.

"It is not unusual to have different selection criteria for different levels of employees, particularly where you want to apply more skills-based criteria to retain more skilled people, especially among senior employees."

As for the use of employment equity as a criteria, Pienaar says, in general, this may currently not be used as a criteria unless there is an agreement between the consulting parties to that effect or where it is captured in some sort of collective agreement or policy.

Pienaar foresees there could be a constitutional challenge if affirmative action is used as selection criteria.

Furthermore, there is US case law which says the employer may not use affirmative action as selection criteria in a retrenchment exercise.

He also points out that there is Australian case law that says LIFO may constitute a form of unfair discrimination. This view has, however, not been tested in SA though.

* Fin24 requested feedback from the rescue practitioners about what the deadline would be for government to come up with the required funding and what type of period could be regarded as a reasonable time to wait for such funding. At the time of publication, no response had been obtained.

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