SAA’s newly appointed business rescue practitioner, Les Matusan of Matusan Associates, has taken full control of the airline following the Government’s decision last week to place the technically insolvent state carrier into immediate business rescue.
President Cyril Ramaphosa used his weekly newsletter, and Public Enterprises Minister Pravin Gordhan a lengthy editorial in a Sunday newspaper, to reassure the country that the implementation of business rescue at SAA was a sign that the government was prepared to take difficult steps in the national interest and to stabilise and protect the country’s fiscal position. Their statements were clearly aimed at also reassuring rating agency Moody’s, which is threatening to downgrade South Africa to junk status if the country’s fiscal picture doesn’t improve.
Appointed by the Companies and Intellectual Property Commission, Matusan comes with a distinguished career of 35 years as a turnaround strategist, having managed business rescues at Ellerine Furnishers, a subsidiary of African Bank, the restructuring of Edcon and Evraz Highveld, South Africa’s second largest steelmaker. He is facing a race against time to restructure SAA before the cash runs out for it to continue operating. In its present form, SAA cannot generate enough funds to pay for operations, meaning the National Treasury and commercial banks have put up another R4bn to fund the gap until the airline breaks even.
In terms of South Africa’s Companies Act, Matusan has 25 days to file a business rescue plan to present to SAA's creditors for approval, although the timeline can be extended. He is scheduled to meet all stakeholders, including creditors and trade unions, within the next 10 days. First up were members of the SAA board and management team, who met with Matusan on Friday to bring him up to speed about the state of the airline. Matusan reportedly also reassured SAA employees that they would receive their salaries, promising to keep the airline operational while looking at the best possible way to restructure it. The opposition Democratic Alliance, meanwhile, was lobbying for Parliament's Standing Committee on Public Accounts (SCOPA) to be included in the stakeholders meeting with Matusan.
His appointment has received a mixed response. Industry commentators and economists generally welcomed it as the best option for the airline and its related industries, removing it from government interference and trade union influence. Although they pointed out that business rescue did not guarantee SAA’s survival, nor the continuance of its present form. According to June statistics by the Companies and Intellectual Property Commission, only 571 of the 3 289 companies that went into business rescue in the last eight years were substantially turned around, meaning business rescue could just mean an orderly liquidation for SAA.
“SAA plays a pivotal role in the aviation industry and the impact of the airline is felt well beyond SAA itself but on other airlines and their contractors too,” says CEO of Barsa (Board of Airline Representatives of South Africa), June Crawford.
An uncontrolled exit of SAA from the air transport industry would result in slowed or even negative economic growth if no contingency measures could be implemented warned the Airlines Association of Southern Africa (Aasa). “SAA’s business rescue must provide the aviation and allied industries with the ability to adjust, adapt and ensure that their customers, markets and the communities they served are provided with sustainable, competitive, capable, reliable and safe services,” Aasa said.
However, trade unions NUMSA and SACCA threatened to go to court because they were not consulted in the decision to appoint a business rescue practitioner. The unions want SAA former CEO, Vuyani Jarana, appointed to work hand-in-hand with Matusan on the restructuring of the airline. Trade union Solidarity, meanwhile, decided to drop a legal application against SAA for appointing a business rescuer without consulting them.
SAA’s situation may have an unforeseen impact on Comair, which is to meet Matuson to discuss a R1bn settlement agreement that it won against SAA for anti-competitive conduct dating back 14 years, over SAA incentives paid to travel agents between 2001 and 2006 to divert customers to its flights. Chapter Six of the Companies Act, which deals with business rescue procedures, puts a moratorium on creditor claims against a company in business rescue.