OPINION | Open letter to creditors voting on SAA's future

SAA was placed into business rescue in December 2019.
SAA was placed into business rescue in December 2019.

This week is crunch time for SAA, and its demise or a new lease of life is at stake. It’s a week in which the minister of finance signals the state’s appetite for some degree of assistance in his emergency budget speech on Wednesday, which, in turn, will play into Thursday’s SAA creditors' vote that will ultimately have the final say on the airline’s future, writes Wayne Duvenage.

Let's face it, from a citizen and taxpayer perspective the easiest approach for the future of South African Airways would be to "call it a day and vote for liquidation".

That way we could be assured of no further taxpayer bailouts, aside from the cost of liquidation. It's one that I have punted for some time now, but given some time to unpack the dynamics, this seeming approach, while easy to motivate given SAA's history, could blindly set aside the possibility of SAA's revival, if indeed certain prerequisites by the state could be guaranteed and implemented.

What might those perquisites be, to assume a nod from the creditors (and society) for an SAA survival plan proceeds?

Despite society losing trust and faith in what government says these days, from an activist perspective with a sense of possibilities and opportunities across several fronts, the following non-negotiable items, if both guaranteed and implemented relatively quickly, may just do the trick:

1.    Reduced state ownership, a worker equity plan and a substantive private sector shareholding: If there is any plan or thought that government intends to retain a major shareholder and management stake in SAA, forget it. The state has proven time and time again they are unable to manage and run businesses that operate in highly competitive industries that require professional skills, agility and decisions that are made for the long-term benefit of the business.

The first step toward possible success for SAA must therefore come with a guarantee from government that it will step away from controlling interest and management of the airline. Zero political meddling is a non-negotiable factor and this can only be guaranteed if the state is no longer the majority shareholder.

In addition, a staff equity plan would be a good idea in today's growing calls for greater worker inclusivity. By enabling a sizable shareholding by the staff in SAA's future, the airline may also reduce the stranglehold unions often have over these businesses. There is no doubt the industrial action at the end of 2019, placed a significant hurdle in SAA's recovery plans. The biggest losers were the striking employees themselves, although they will be the last to admit it. When employees have a stake in the success of the business, they generally make longer-term business minded decisions that are in their best interests and that of the business.

2.    Board and executives with aviation expertise:  Successful airlines are run by people with solid and proven aviation expertise. Any future SAA plan has no hope of lift-off without the appointment of a board with aviation understanding and proven business experience at an executive level.

This board will also need to appoint an executive team with substantive airline management experience, entrusted to successfully operate the airline. SAA had a number of good leaders within its corridors until the Dudu Myeni saga was unleashed and robbed the once profitable airline of its rational thinking and executive acumen. This airline will need industry experts who understand both the international and South African airline industry dynamics, if indeed it is to succeed.

3.    Focus on core business: A new SAA 2.0 must question the need to hold onto Air Chefs, SAA Technical (SAAT) and other divisions. A new focus on being excellent at flying passengers and cargo will clear the deck and remove distractions caused by managing catering and maintenance companies. By selling off SAAT and Air Chefs, the new SAA may have extra cash and will certainly remove the costs associated with high levels of corruption that has beset SAAT. Furthermore, the privatisation of SAAT will enable its investors to service other airline operators and run the business more profitably and probably at lower cost to SAA's current maintenance needs.

4.    The cost of business rescue vs. liquidation: Many estimate the cost of liquidation could be equal to or higher than the costs of SAA's business rescue. Society and creditors need to be convinced of these costs within a workable business rescue plan. Without doubt, the past three pandemic-impacted months have drastically changed the airline landscape. However, new opportunities exist in this time of crisis, even for "new airline" ventures, which means SAA's future has better prospects for success if approached with a "start-up" mindset.   

5.    Government's "no bailout" commitment to South Africans: A nod to proceed by creditors will be easier made if society is given assurances by the state that, beyond the rescue finance plan, not a cent more of taxpayers' funds will be used to bailout the airline.

Guarantees and commitments by the state on these issues may just convince a majority creditor vote in favour of a new lease of life for SAA. However, it will probably come down to the collective vote from the four banks (Investec, Nedbank, Standard Bank and ABSA) who have the majority say in this decision.

There are agendas and interests on both sides within the list of creditors voting on the business rescue decision. Some (like Airlink) will benefit from SAA's liquidation, while others (most notably the employees) and others will benefit from its revival. The four banks, however, are in a "neutral impact" situation either way, given that their collective R16.4 billion debt is safely backed by government guarantees. And yet, their decision has immense ramifications for many either way. If they are convinced by a revival plan that reduces the state's control, is both sensible and workable, costs more or less the same as liquidation and will not receive further Treasury bailouts, SAA could very well be given a final life line.

Whatever comes of this week's decision, a lot of learning will have transpired. The apparent dawning by many within the state's structures that government needs to seriously consider relinquishing ownership of its borderline and loss-making SOEs, may be too little too late. It goes without saying, especially in today's post-pandemic era, that loss-making SOEs eat into the resources we desperately need to address the issues within education, health, water and housing.

One of two broad subject matter topics will permeate the writings of business academia following the outcomes of this week's decision on SAA. It's either "how businesses are able to thrive when free of state interference", or "the price society pays for belated paradigm shifts within the public service".

Which will it be?

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