The business rescue practitioners of South African Airways on Friday filed a notice of substantial implementation with the Companies and Intellectual Property Commission.
This brings to an end the business rescue process of the state-owned flag carrier, which began on 5 December 2019.
The business rescue plan was voted for and approved by creditors on 24 July 2020 with a R10.3 billion funding required for its implementation. To date R7.8 billion has been received from government for the implementation of the plan.
“A significant portion of the debt that hamstrung SAA has since been compromised and the balance thereof transferred to a receivership, a vehicle specifically intended to ensure the debt is paid over the next three years,” the BRPs said in a statement.
“Thus, the practitioners are leaving both a solvent and liquid SAA adequately set to continue into the future. The filing of the notice for substantial implementation means that the BRPs have effectively discharged the business rescue and handed over the operations of SAA back to its board and executive team with immediate effect.”
Joint rescue practitioner Siviwe Dongwana thanked all affected parties and relevant stakeholders “for working with us over these past months of business rescue of the airline especially for being receptive to compromises requested by the BRPs to ensure SAA is saved and restored as a going concern”.
“We wish the board and executive team well as they charter the airlines’ future,” he added.
The Department of Public Enterprises (DPE), SAA’s shareholder, welcomed the notice of substantial implementation filed by the BRPs but said the work to save SAA was not “finished”.
“The business rescue process enabled restructuring of SAA, reducing its cost base and its financial liabilities creating a sustainable baseline going into the future. The BRPs are handing over to the SAA Interim Board a solvent business. However, this does not mean that the work is finished. The Board and Management will be developing and implementing an interim business plan to sustain the operations while a strategic equity partnership (SEP) is being finalised,” states the DPE in a statement.
“Government is in the final stages of negotiations with the preferred SEP, and a purchase and sale agreement should be concluded in the next few weeks. This will enable capital, and much needed technical and commercial expertise to be brought in to ensure a competitive flag carrier emerges.”
The DPE said the liabilities remaining from the rescue plan will be settled over the next three years. These are concurrent creditors and unflown ticket liability and will be done via the receivership.
“The interim board of SAA is mandated to oversee the strategic, financial, and operational management of the subsidiaries of SAA, South African Airways Technical (SAAT), Airchefs and Mango and ensure their commercial sustainability. These subsidiaries will need to be restructured and in some instances, the case for continued existence must be assessed,” said the DPE.
Tensions with pilots
The practitioners confirm in their latest report to the CIPC and all affected persons that members of the SAA Pilots’ Association (SAAPA) are still locked out and that settlement negotiations with SAAPA have become protracted due to several disagreements regarding the terms of payment.
“The practitioners however remain hopeful that these negotiations will be concluded shortly,” states the report.
The practitioners also state that they “note with concern that certain misrepresentations have been made, possibly inadvertently, regarding the funding available for the settlement of the severance payments to pilots and or the security of payments to be made through the receivership”.
“SAA has acceded to the majority of the financial demands of SAAPA and is in a position to make payments to pilots once a settlement has been concluded. A very small portion of the settlement payment would be paid through the receivership over a three-year period and the receivership is an extension of the business rescue plan of SAA and is used to make payments to other affected parties including lenders, the aircraft lessors and the general concurrent creditors,” states the report.
“Thus, there is no basis to suggest that the receivership will not be able to pay monies owing to pilots.”
There are also still a few pending legal proceedings involving SAA, which will be addressed by SAA directly. SAAPA is, for example, challenging the lockout in the Labour Court, wanting to restrain SAA from employing persons to do the functions of SAAPA’s members at the time involved in industrial action. SAA has opposed the application, which has been postponed until 18 June 2021.
What about SAA’s financial statements?
An aviation insider, whose identity is known to Fin24 but who commented on condition of anonymity, said on Friday that the obvious question is: how do you prove SAA is solvent if it has not published audited financial statements in four years?
Unlike SAA, Mango and the other subsidiaries, SAA Technical (SAAT) and AirChefs, were not placed in business rescue. All three are in dire need of funding. SAA’s shareholder, the Department of Public Enterprises, has been trying to get R2.7 billion of the R10.5 billion allocated for implementing SAA’s rescue plan to go to the subsidiaries.
National Treasury requires Parliament to make a special allocation in this regard before the R2.7 billion can flow to the subsidiaries. It is unclear whether, now that SAA is out of business rescue, it could assist its subsidiaries until the Parliamentary approval for the R2.7 billion is obtained.
This led to SAA’s rescue practitioners having to set up a so-called receivership to handle the monies – about R3.5 billion – which would still have to be paid in terms of the rescue plan over the next three years. It is as yet unclear where the funds for that would come from.
Mashudu Raphetha, general secretary of Dynamic People’s Union of South Africa (DYPUSA) – a new union in the aviation industry – said on Friday that it welcomed SAA exiting business rescue.
“We believe it has been long overdue and would have cost a lot more if it stayed in business rescue. Equally, we want to see the current executive guards against looting. We are hopeful that the interim board will not make wreckless financial decisions and ensure SAA sustains itself into the future,” said Raphetha.
“As DYPUSA we will question every decision they take, but that does not mean we hate them. We just want to scrutinise every decision to avert looting and corruption.”
* This article was updated at 18:30 on Friday 30 April.