The SA government has to commit to funding at least R10.3bn (€539m) over the next three years to rescue SAA, ending months of uncertainty over the airline’s future.

South Africa’s Department of Public Enterprises (DPE) and National Treasury must tomorrow (July 15) provide SAA’s business rescue practitioners Siviwe Dongwana and Les Matuson with a letter of commitment signed by both departments, confirming they will raise R10.3bn (€539m) over the next three years for the business rescue plan, which was overwhelmingly approved by 86% of creditors yesterday. If it fails to do so the deal will fall through.

This has been confirmed by Louise Brugman, spokesperson for the BRPs. She says of the R10.3bn (€539m), R2.8bn (€146m) is needed for immediate start-up capital for July and August. DPE spokeperson Sam Mkokeli says the general figure required is R10.4bn (€546m), but he doesn’t believe the content of the letter is prescribed.

Brugman says further conditions to be agreed on by July 22 include the finalisation of the terms and conditions of voluntary severance packages and Section 189 retrenchments. A receivership will be established to deal with creditors’ claims. The BRPs will then file a notice of substantial implementation, thereby discharging the company from business rescue.

Earlier today (July 14), the DPE reiterated Government’s commitment to mobilising the necessary resources. Cabinet previously expressed its support, but Treasury told Parliament there was no money to save SAA.

 However, DPE Acting DG, Kgathatso Tlhakudi, claimed Government as a whole supported the plan. “The project has been reflected in some quarters as a vanity project of DPE or National Treasury – this is far from the truth,” he said.

Tlhakudi said Government would soon announce preferred strategic equity partners for SAA and its various business units. He said Government was in the process of appointing a transaction adviser to tie up initial engagements with prospective candidates.

He also announced that SAA Chief Commercial Officer, Philip Saunders, would be the interim CEO of the new SAA, with an announcement on an interim board due within days. Saunders would work closely with the interim board to appoint an interim management team to implement the restructuring of SAA.

Tlhakudi said the new business model catered for “a responsible ramp up of operations in response to the COVID-19 pandemic trajectory, which is due to peak in South Africa between August and September 2020. The base established will ensure a firm foundation for growth going forward”.

The DPE has, for weeks, pushed hard for creditors and trade unions to accept the plan, which critics say for the most part is nothing more than a schedule of SAA’s debt repayments instead of a plan on how to revive the airline.

Some creditors have accused the DPE of railroading the process and ignoring their concerns. No creditors were given the chance to ask questions or make presentations before the voting took place at yesterday’s meeting.  “Creditors are being stonewalled. The BRP isn’t running this process; the DPE is in control and is adamant to force it through,” one creditor charged.  

Contentious issue

Another contentious issue surrounding the vote was that the voting interest was weighted 62% in favour of banks, whose R16.4bn (€865m) loans to SAA are secured either way by Government guarantees. According to the plan, the banks have the right to call in Government guarantees if it fails to make the first repayments of R5.8bn (€303m) to them by August 31.

Meanwhile, concurrent creditors will receive only 7.5 cents in the rand of their claims. “The only group being compromised are concurrent creditors, singled out with the vote stacked against us; ultimately our claims in SAA will be forfeited,” one creditor said. “Concurrent creditors are being forced into making a forced investment of 92.5 cents in the rand into SAA, and this is the only group apart from the shareholder, making such an investment,” a creditor commented.

The R26.9bn (€1.4bn) funding requirement proposed by the BRP includes: R2.8bn (€146m) restart capital; R2,2bn (€115m) for voluntary severance packages (VSPs); R3.2bn (€157m) to honour unflown tickets liability; R600m (€31m) over three years to refund general concurrent creditors; R1.7bn (€89m) over three years to aircraft lessors; and R16.4bn (€865m) over three years to repay secured lenders.

This excludes R2.15bn (€112m) needed to settle debts for SAA’s subsidiaries Mango, SAA Technical and Air Chefs; three years of expected losses totaling R6. 4bn (€335m), plus any potential damages claims brought by the lessors and other creditors, pushing total funding requirements up R35.5bn (€1.8bn).

According to amendments to the plan approved yesterday, 1 000 of SAA’s 4 700 employees will be retained under new, market-related terms of employment. Another 1 000 will be placed on a 12-month training lay-off scheme but will get preference when positions become available in the new airline. The remainder will be offered voluntary retrenchment.

The DPE claimed the restructuring would be different to the numerous previous attempts at turning around SAA. “The old way of contracting for labour and services is being departed from; productivity and efficiency will guide the performance system going forward,” Tlhakudi said.