South African Airways dodges a bullet
Photo: Ray Barber / Flickr

Government pledge to source SAA business rescue plan funding

The DPE has provided Business Rescue Practitioners (BRPs) with a commitment from government that they will fund the approved plan.


South African Airways dodges a bullet
Photo: Ray Barber / Flickr

Government has put pen to paper on a commitment to source funding amounting to approximately R10.1 billion to ensure that South African Airways’ (SAA’s) business rescue plan, which was approved by creditors and unions on Tuesday 14 July, can take effect. 

Government have declared their full support for the move to steam on with the coming retrenchment process for some 2 700 employees and begin forging a new airline that they hope will rise from SAA’s smouldering ashes. 

Cabinet to fund SAA business rescue plan  

The Department of Public Enterprises (DPE) conveyed the news on Thursday 16 July, saying that government has agreed to ensure the funding of the business rescue plan, which will be allocated to:

  • Fund the rescue plan, clean up and stabilise the balance sheet of SAA; 
  • Restructure the rest of the Group entities that are not in business rescue, 
  • Provide working capital for the rest of the group’s entities; and 
  • Create a stable and viable platform for a new restructured national airline.

The Department said that a letter of support for the plan from government and a commitment to source funding was signed on Wednesday. 

“A letter in support that commits government ‘to mobilise funding for the short, medium and long term requirements to create a viable and sustainable airline’ was signed by the Minister of Finance and Public Enterprises on 15 July 2020 and provided to BRPs”

“The Department of Public Enterprises (DPE) welcomes the commitment by National Treasury that the government will support and source funding for a business rescue plan for South African Airways (SAA) which will result in the emergence of a new viable, sustainable, competitive national airline.” 

Cabinet hopes SAA restructuring will provide opportunities for black pilots

In the letter, Cabinet said that it “supports the proposal for a new airline and the concerted effort to mobilise funding from various sources, including from potential equity partners for the uptake of the new airline”. 

Cabinet added that they see the effort to structure a new, more efficient version of SAA, which has forced government to dig deep into its pockets and provide bailout support on a plethora of occasions in the past, will facilitate racial transformation in the aviation sector of South Africa. 

“[Cabinet] maintains that a positive vote from creditors to finalise the business rescue process is still the most viable and expeditious option, for the national carrier to restructure its affairs, which include its business, debt and other liabilities, and believes a restructured airline will pursue the transformational agenda such as the lack of opportunities for the advancement of black pilots after 26-years into our democracy.” 

The DPE said that the retrenchment process will now begin, with unions representing SAA’s employees having accepted the Voluntary Severance Packages (VSPs) offered to them prior to the commencement of the voting process on the business rescue plan. 

“The restructuring will include severance packages to about 2 700 SAA employees who will be retrenched, which packages meet the minimum requirements of the Labour Relations Act, and the provides incentive to those employees at the lower rung of the remuneration scale to ensure that they are not worse off,” they said. 

COVID-9 may provide strategic opportunities fo new airline 

The DPE also said that they are aware that the aviation industry currently finds itself in a period of financial distress following the closure of international and domestic borders due to the COVID-19 pandemic, but said the catastrophic circumstances surrounding the invitation of their plan meant that there may be strategic opportunities to explore. 

“The DPE is cognisant that airlines across the world are in turmoil due to the COVID-19 pandemic,” they said. “There are possibilities for airline partnerships to improve the scale and scope of the aviation industry and ensure continuity of value creation to he South African economy”. 

“While maintaining a certain level of presence in the ownership of the new carrier, the DPE welcomes the attraction of a mix of local and international investor groups to provide the new airline with technical, financial, and operational expertise to ensure significant South African ownership whilst diversifying the investor base.”