South African Airways creditors and unions overnight approved a rescue plan that includes at least 26.7 billion rand (A$2.3 billion) in state funding and thousands of job losses.
Voters representing about 86% of those eligible supported the package, first proposed by administrators for the bankrupt carrier a month ago. The motion overcame the 75% threshold after most labor groups agreed to sweetened severance packages last week, clearing the way for the workforce to be cut by almost 80% to 1,000 people.
All eyes now turn to the National Treasury, which will need to find about 10 billion rand more than previously allocated for SAA at a time when state finances are severely stretched by the coronavirus pandemic.
Finance Minister Tito Mboweni has repeatedly voiced his reluctance to provide further bailouts to a carrier that hasn’t made a profit in almost a decade, putting him at odds with Public Enterprises Minister Pravin Gordhan.
According to SAA’s business-rescue plan published June 16, the Treasury needs to provide a written commitment to provide the funding by Wednesday or the proposals will be deemed unimplementable. The administrators expect to receive a confirmatory letter, Siviwe Dongwana, one of the lead architects of the recovery plan, said at the creditors’ meeting on Tuesday.
“By giving the government the green light to massage its political ego through this multi-billion dollar nightmare, the creditors have spirited away finds that are desperately needed to cope with the coronavirus as well to stimulate the economy,” Alf Lees, a lawmaker for the opposition Democratic Alliance, said in a statement.
Gordhan’s department has said private investors and potential airline partners have expressed interest in taking part in the restructuring of the national carrier, which may help relieve the burden on the state.
Speaking at the meeting, Kgathatso Tlhakudi, acting director-general of the department of public enterprises, said the government is looking for an adviser to work on a sales process.
SAA was placed in administration in December after surviving on bailouts and government debt guarantees for several years. Initial work on a recovery plan was torpedoed by the Covid-19 pandemic, which grounded all the carrier’s commercial passenger planes from late March.
The government said earlier Tuesday Philip Saunders has been appointed acting chief executive officer, a promotion from chief commercial officer.
PREVIOUS [ June 2, 2020] | South Africa’s government has provisionally agreed to allocate at least 21 billion rand ($1.8 billion) to the country’s embattled national airline to help repay debt and resume operations after the lifting of Covid-19 travel bans.
The proposed package includes about 17 billion rand that will go toward repaying South African Airways creditors, according to a draft copy of a rescue plan prepared by administrators and seen by Bloomberg. A further 4 billion rand will go toward retrenchments and working capital.
The draft plan “is for discussion purposes only and we await comment from the affected persons,” a spokeswoman for the administrators said, adding that the team has until June 8 to finalize a rescue proposal. South Africa’s Public Enterprises Ministry, which is responsible for SAA, said it hasn’t yet discussed the plan and no decisions have been taken.
While the funding agreement has yet to be finalized, a deal of this nature would represent a truce between the government and SAA’s business-rescue team over the airline’s future.
The administrators, appointed in December, had an earlier request for state funding rejected in April, and subsequently proposed firing the entire workforce to stave off liquidation.
Plans for new airline abandoned?
Public Enterprises Minister Pravin Gordhan strongly objected to that plan and instead announced his ambitions for the creation of a new "financially viable and competitive" airline, potentially with both public and private owners.
"It will not be the old SAA but the beginning of a new journey to a new restructured airline which will be a proud flagship for South Africa," the country's Department of Public Enterprises said in a statement at the time.
"The old SAA is dead, there is no doubt about that," Gordhan told Bloomberg. "But what will take its place may be some or all of the old SAA and maybe some other airlines too."
However, the proposal appears to have kicked off a fresh round of talks which has resulted in another bailout for South African Airways, which is technically insolvent and was on the brink of being placed in liquidation by administrators.
The coronavirus looked to be the final nail in the coffin for SAA, which last made a profit in 2011 and has since racked up $2 billion in losses over the last six years and has relied on bailouts and state-guaranteed debt agreements to keep flying.
SAA’s commercial passenger planes have been grounded since late March, when the government closed borders for non-urgent travel to contain the coronavirus. Some domestic flights are being allowed to operate as of Monday for business purposes, though SAA had previously reduced its local services to a single Johannesburg-Cape Town route.
Additional reporting by David Flynn