As the anniversary of SAA entering business rescue looms on December 6, the implementation of the airline’s business rescue plan, which is tasked with turning the business around, remains a distant goal.
While the business rescue practitioners (BRPs) blame this failure on the lack of post-commencement funding, questions are being asked about whether the airline should ever have been placed in business rescue in the first place. Moreover, in the intervening 12 months, the South African, regional, continental and global air landscape has changed dramatically, the plan was not designed for a post-pandemic world, and there is little space left in SAA’s market.
According to the Companies Act 71 of 2008, business rescue proceedings are generally expected to be concluded within three months, with the Act including special provisions for procedures that exceed this timeframe.
“Section 132 provides that business rescue proceedings should last for a period of three months. It is not clear what the words ‘business rescue proceedings’ intend to cover but it is understood that during the three months, the business rescue practitioner must do his job by convening meetings for affected persons, consulting on the business rescue plan and thereafter implementing the plan if it is approved in accordance with the Act,” states Werksmans Attorneys in its published ‘Basics of Business Rescue’ report.
In a recent Business Day article, legal expert, Louwresse Specht, speculated that SAA had never been a good candidate for business rescue, which was evidenced by its not being able to trade itself to liquidity without relying on post-commencement financing at the taxpayers’ expense. She accused the government of side-stepping the courts by placing the airline in business rescue by resolution, saying that any judge would have ordered the entity to be liquidated. She added that the government’s cash injection of R10,5bn (€567m) was all the more outrageous, coming at a time when the administration should be more focused on saving the economy.
“The appointed practitioners, Siviwe Dongwana and Les Matuson, failed in their duty at the first meeting of creditors by not advising the creditors and other stakeholders that SAA was not capable of being saved. There was a gross neglect of the duty of good faith that the board and the practitioners, in terms of the Companies Act, are subject to,” said Specht, in the article. “By allocating funds from causes such as basic and higher education, health (during a pandemic, no less) the police, transport and human settlements, the message the government conveyed, whether wittingly or not, was that its vanity project is more important than the citizens of this country – and the practitioners seem to sing to this tune,” she added, noting that by June 2020, the BRPs had cashed in close to R40m (€2.1m) for their efforts to save the airline.
The trade weigh in
While trade sentiment was fully supportive of SAA’s business rescue process a year ago (see article ‘Agents want to support SAA’ in Tourism Update’s sister publication TNW, December 11, 2019, https://www.travelnews.co.za/print-archive/11-december-2019/view-pdf) current opinion in the country has shifted and questions if there is still space in the market for a struggling national carrier that has lost 100% of its market share during the eight months since it ceased operations at lockdown level five.
Will a business rescue plan that was drafted in December and signed off in July, before the full effect of COVID-19 on the aviation industry was understood, be relevant and be enough to shift the airline into profitability?
“For SAA to successfully re-enter the market at this point, they need to ask themselves a) how they will rebuild consumer confidence to a point that South Africans will trust the airline again and, b) if any real gaps still exist that would allow them to carve out a place in the market again,” said CEO of Asata, Otto de Vries.
“Domestic flights reopened during June and domestic airlines have ramped up services to a point where there is more than sufficient flight capacity available, particularly in the low-cost carrier segment. A niche could still exist for a full-service airline offering, with a business-class cabin, but as BA Comair relaunches its services, this gap will also begin to close,” added De Vries. “Regional route opportunities – which have traditionally been SAA’s most profitable routes – are being quickly plugged by the proactive movements of Airlink and CemAir, while SAA and SAX are out of the picture. Internationally, SAA has always struggled to compete with international carriers and, as every day passes that it remains grounded and other carriers continue to build capacity on key international routes, it becomes more difficult for SAA to re-enter the market.”
De Vries said he felt the world was also a different place a year ago, when the business rescue plan was first drafted, and asked whether the plan had been adjusted to take the impact of COVID-19 on the market into full consideration.
Differences of opinion on SAA have been publicly aired by both the Minister of Public Enterprises, Pravin Gordhan, who oversees SAA, and the Minister of Finance, Tito Mboweni, who is required to keep funding the beleaguered airline. A month ago, Mboweni reluctantly announced, in his medium-term budget policy statement, that a further R10,5bn (€567m) would be provided to SAA for the implementation of its business plan. As government is only expected to be able to procure these funds by mid-January, all the airline’s operations remain suspended until then.
While Gordhan was quoted at a briefing of SCOPA this month saying that SAA had a role to play in the economy and that allocating it R10,5bn was a better option than liquidation, Mboweni described the decision to outlay the funds as “difficult”, from both a financial and a political point of view. He also took to Twitter to air his conflicted state, asking: “What should we do with SAA? Do we need a national airline? Or, is the airline industry market going to solve the question? In other words, where there is a market gap, a vacuum in a market, an airline will emerge to fill the gap. Will it? Airlink? Or a restructured SAA?”
Most nay-sayers (81% of the 125 yes/no responses) argued that South Africa had more pressing needs and the comment trend suggested that when it came to transportation specifically, the country’s rail network should be the priority when it came to allocating government funding.
When SAA gets its R10,5bn in January, to revitalise itself it will need more than the money. It will need good expertise at management level, keen staff and crew infused with positivity and the will to make it work, modern fuel-efficient aircraft and cutting-edge systems. It will also need a great deal of goodwill from the South African public, and in order to get critical mass, it will have to put in a lot of effort to rebuild the confidence and faith of South African travel agents.