The South African government will cede control of its flagship airline to a restructuring specialist in a last-ditch attempt to save the cash-strapped business from collapse.
As part of a rescue plan started on Thursday, the government will hand the running of South African Airways (SAA) to an as-yet unidentified specialist to make the sort of painful cuts that would be difficult for politicians to push through.
SAA has been granted a 4 billion rand ($272 million) lifeline from the government and banks to launch the rescue plan, but that cash could only last for months, analysts say.
The airline has been on the brink of collapse since a crippling strike last month left it without enough money to pay salaries on time. Then two major travel insurers stopped covering its tickets against the risk of the company becoming insolvent.
SAA employs around 5,000 people, while the wider SAA group, which includes maintenance and catering divisions, employs around 10,000.
The airline, which has not made a profit since 2011 and has received more than 20 billion rand of government bailouts over the past three years, said it would publish a new provisional flight schedule soon.
Airport staff at Johannesburg’s OR Tambo airport said there hadn’t been much disruption to SAA’s timetable so far, but passengers were pessimistic about its prospects.
“I think SAA is doomed already … We shouldn’t be paying out of our own money. That money should be coming from somewhere else,” said Alicia Knoetze, 34, who was travelling to a motorcross competition in Zimbabwe.
Public Enterprises Minister Pravin Gordhan said the business rescue process was the best way to rebuild SAA into a stronger entity. He said the plan was to attract an equity partner later.
CEDING CONTROL
But it will be a business rescue practitioner, rather than the government as SAA’s shareholder, who will decide how the future of the airline should look.
The restructuring expert will aim to either return the airline to solvency or maximise value for its creditors.
Banks have promised to give SAA 2 billion rand of loans guaranteed by the government to launch the process, with the government providing a further 2 billion rand in what Gordhan termed a “fiscally neutral manner”.
SAA’s government-guaranteed debt, mainly held by local banks, will not be subject to writedowns in the business rescue process, but analysts expect other creditors to suffer losses.
SAA said the process sought to provide the best prospects for “selected activities within the group to continue operating successfully”.
Guy Leitch, an aviation expert and editor of SA Flyer magazine, said business rescues often failed because they were left too late.
He said the rescue would probably require more than 4 billion rand and was sceptical officials would continue to fund it since they would have limited say in its outcome.
Hans Klopper of BDO Business Restructuring said the rescue process for SAA could take months if not years.
A relatively small amount of SAA’s assets could be recoverable and confidence in SAA is already low, he said.
“If there aren’t willing patrons prepared to book flights then the bottom falls out of the whole business,” Klopper said.
($1 = 14.7075 rand)
.Reuters
