SAA UIF bailout

Image via Wikimedia Commons

Solidarity brings application to place SAA in business rescue

Here’s what this means for the ailing national carrier and the South African economy.

SAA UIF bailout

Image via Wikimedia Commons

Solidarity trade union served court papers on the SAA, Tito Mboweni as Minister of Finance and Pravin Gordhan as Minister of Public Enterprises this morning, asking the court to put SAA in business rescue.

If Solidarity’s application is successful, it would be the first time in South African history that a state enterprise is placed in business rescue. This will mean that the court can appoint a business rescue practitioner with comprehensive powers to rescue the airline.

What happens to SAA under business rescue?

This new development will not only affect the airline, the government and the taxpayer but also the workers currently on strike, because if the airline is placed in business rescue, all decisions with financial implications will revert to a business rescue practitioner, which will mean the SAA board or the government would not be able to agree to strikers’ demands, even if they wanted to.

Instituting business rescue would also require SAA to fork out a large cash sum as guarantee to the international ticketing authority, which will require such in accordance with international aviation regulations. The guarantee will exceed the SAA’s cash in hand and government has repeatedly stated that another bailout will not be forthcoming. 

 In its court papers, Solidarity argues that business rescue is essential to the security of its members at SAA, as well as to all South African tax payers. According to Solidarity COO Dirk Hermann the union is profoundly aware of the crisis SAA faces.

“SAA is heading for liquidation which will have huge consequences for employees, the South African economy and for taxpayers. About 11 000 workers will lose their jobs and a debt burden of billions of rands will have to be absorbed by Treasury if there is no radical intervention. A business rescue application is the only remaining option to limit the damage. Recent events at SAA accelerated the crisis. SAA’s Day Zero is imminent. The current shareholder has lost control over finding a solution for SAA,” Hermann said

According to him, Solidarity is taking this action as part of its campaign against the squandering of tax money, SAA being one of the country’s worst offenders in this regard.

Dire financial losses

Explaining the move, Connie Mulder, head of the Solidarity Research Institute, said that according to the 2017 financial statements – SAA has not been able to publish its financial statements since then – the airline incurred a loss of R5 569 000 000.

“This means that R15 257 534 was being lost per day. Every hour, we are losing R635 730, and every minute R10 595,51. Since 2017, no new statements have been published and it can be assumed that the situation is only getting worse. Every day that goes by must therefore be regarded as a crisis,” Mulder said.

Solidarity’s locus stands in the matter is rooted in the fact that it has members within the SAA Group. It claims that it is also acting in the interest of its members in public enterprises in all sectors of the South African economy, and on behalf of every South African taxpayer. According to the Companies Act, public enterprises may be placed in business rescue and trade unions may bring such an application.

“The crisis in the SAA not only threatens the jobs of SAA employees. It threatens all workers and taxpayers. Solidarity’s members are also ordinary workers who pay a portion of their hard-earned money as taxes. We also act on behalf of the approximately 500 000 members of the Solidarity Movement who faithfully pay their taxes. They cannot allow their tax money to be constantly misused to subsidise struggling, ineffective state enterprises,” Hermann said.

Solidarity said tax money cannot be used to subsidise a struggling airline which is only accessible to the small group of the population who make use of this mode of transport.

The decision to apply for business rescue follows on many efforts to get the government to act responsibly, Hermann said.

Solidarity had planned to bring a business rescue application last year, but following negotiations and an agreement reached with then SAA CEO Vuyani Jarana, a decision was taken not to proceed with the application.

“Solidarity had great confidence in Jarana, and still has. However, he has left and according to Solidarity, the agreement reached could not be implemented. In Jarana’s letter of resignation he expressed his frustration with the shareholder,” Hermann pointed out.

Pravin Gordhan enters the fray

Since then, Solidarity also held discussions with the SAA Board, Gordhan and officials of his department. Hermann has declared Solidarity totally committed to finding a type of solution for the SAA, proven by the fact that the union went the extra mile with discussions in the search for solutions.

“We realise that a business rescue application is fundamental and therefore we held discussions repeatedly. Business rescue is no magic wand for the SAA; in fact, it drives the crisis to a head with no guarantee of a solution.

“However, we know that the current SAA path is past the point of finding solutions. The current trajectory would mean an overall collapse of all operations within SAA. Business rescue gives us the chance to save those parts of the SAA that are still functional and efficient,” stated Hermann.

Solidarity claimed that the already troubling situation within SAA has deteriorated further and faster with the notice of retrenchments, cash loss from the current strike, and especially the loss of confidence in SAA. The union believes there is no longer time for extended processes. A radical intervention by a third party is necessary.

“We also believe that a business rescue application will be in the interest of the current shareholder, the state. The right decision would be if the current shareholder would bring such an application itself. We want to appeal to the current shareholder not to oppose the business rescue application, but rather to work closely with the business rescue practitioner to find a solution to the current crisis,” explained Hermann.

The search for stability in SAA

Hermann emphasised that business rescue can bring about stability in an enterprise.

“Business rescue is not liquidation. On the contrary, business rescue is an effort to find a solution before liquidation becomes the only option. The submission and serving of today’s business rescue application stops all possible legal processes of creditors to liquidate the SAA. A business rescue practitioner also has comprehensive power which includes the termination and renegotiation of contracts.

“Business rescue actually provides temporary security that the liquidation process, which is where the SAA is heading, cannot provide,” Hermann opined.

“According to SAA’s 2017 financial statements, which are the latest they have been able to produce, the company has a debt of R33 billion. According to its recent submission to Parliament, the SAA needs a further R21 billion to turn the airline around and stay in the air temporarily. The accumulated losses of SAA increased from R16 billion in 2013 to R31 billion in 2019.

“SAA is therefore hopelessly insolvent. The liabilities of the company exceed the assets by far and the situation deteriorates year after year. Other state debt, which is also growing, and crises such as Eskom, which is a bigger priority, worsen the SAA position and only bring total collapse and job losses closer,” Hermann added.

According to Solidarity, the effect on the 11 000 SAA workers and thousands of related jobs, the community and economy will just be too detrimental to wait for the state to act.

According to Solidarity’s court documents comprising hundreds of pages, the company can be rescued. Solidarity has included in its court papers a comprehensive turnaround plan compiled by a team of leading aviation experts in South Africa and internationally.

Business rescue an ‘emergency landing’

Hermann concluded that Solidarity does not believe in building castles in the air.

“We are realistic about the possibilities that accompany business rescue. It is not the perfect solution, but likewise SAA’s circumstances are imperfect to say the least. To wait until SAA turns around by itself, given the history, is irresponsible and is not grounded in the reality that this enterprise is on its way to total collapse.

Business rescue offers an opportunity to make an emergency landing instead of aiming for disaster. SAA will not be able to continue in this current format. It is not sustainable. Business rescue means that we can limit the damage to all relevant interest groups, we can create security and we can save billions of tax money. The longer we take, the worse the consequences will be,” Hermann concluded.