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Covid-19 adds to SAA costs

Unused tickets which could become due for refund this year amount to R3bn.
Between December and April the BRPs have spent R10bn on SAA's running costs, R500m less than its average monthly costs before rescue. Image: Reuters

The impact of Covid-19 on the aviation sector has left South African Airways (SAA) with contingent liabilities of close to R3 billion related to unflown ticket sales, acting director-general Kgathatso Tlhakudi has said.

Tlhakudi presented a joint presentation between the Department of Public Enterprises and National Treasury to the standing committee on appropriations on Wednesday evening regarding the financial challenges the airline is facing. 

Read: Salary cuts at SAA to keep airline going until June

SAA moves to cut almost half its workforce

The airline has been locked in business rescue processes since December 2019, and like many airlines across the world, its had to ground its commercial flights due to the travel ban which governments put in place to curb the spread of Covid-19.

Financial position

Tlhakudi said the government was held with how to manage R2.8 billion in “air traffic liabilities” which refer to tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. 

Tlhakudi said these are not provided for but may become payable in the current financial year because of the impact of coronavirus pandemic. He said engagements would take place with ticket agents and other affected stakeholders. 

In addition, the government would initiate negotiations with lenders to spread the repayment of the majority of SAA’s loans over the medium term with the first payment being made on July 31. 

Explaining the airline’s current cash position, a representative of the practitioners Bongani Nkasana said SAA had R1.2 billion in cash but R600 million of that was ring-fenced for unflown ticket liabilities. 

The remaining R600 million is already spoken for said Nkasana, with R518 million owing to leases for the planes in April and another R500 million for other creditors such as the Airports Company South Africa and BCX which provides all of the IT equipment. 

“[Currently the airline] has R600 million in the bank but it has about a billion sitting in liabilities,” said Nkasana, which is why at the end of April SAA said it would not able to meet its salary commitments from May onwards.

Business plan

SAA’s business rescue practitioners who have voiced their belief that the airline can be saved as long as funds are made available are putting in considerable work to publish the airline’s business rescue plan by Friday, May 29 said Nkasana in response to questions. 

Nkasana said BRPs Siviwe Dongwana and Les Matuson were not participating in the video conference briefing because they were “busy with that plan”. 

The Companies Act provides that a business rescue plan should be published within 25 days of the practitioners being appointed or on an extended deadline should the majority of the creditors grant the extension.

However, Dongwana and Matuson said the 25-day deadline was “impossible, not only because of the size and complexity of the airline, but also because of the period during which the airline went into business rescue which was during the Christmas and New Year holiday period”. 

Further delays in publishing the plan were attributed to the government not showing a clear commitment to providing the requisite restructuring funding despite it being made aware pf the funding requirements necessary for the kind of restructuring option it had chosen. While working on the plan in the hopes that funding will materialise the BRPs work was derailed by the Covid-19 pandemic which “nullified all the assumptions that were included in the income projections which were used to build the ‘sustainable airline model”.

“Accordingly, a new post-Covid-19 plan was developed in order to preserve the assets of the airline until SAA could reliably predict the income patterns of the future,” they said. 

While waiting for the uncertainty in the aviation sector to pass, a care and maintenance proposal was made to Minister of Public Enterprises Pravin Gordhan who is the shareholder on behalf of the government. 

“When the BRPs were notified that the shareholder would not fund a care and maintenance plan, the only option available to the BRPs was to propose a plan that would provide creditors with a better return, through a structured wind-down, [rather] than liquidation,” they said.

The BRPs insistence that a wind-down was the only viable way forward was not well received by Gordhan, who told parliament on May 15 that it was “shocking” that they were determined to go this route without concluding a plan that provided other options. 

Gordhan made it clear that liquidation or wind-down of the business was not a possibility. He and the BRPs had signed a memorandum of agreement in the lead up to the briefing committing to pause the sale of any assets or liquidation until June 30 while the government makes proposals on a new airline. 

“An announcement in this regard will be made in due course as well as an agreed timeline for the consultation on the business rescue plan and its publication,” said the BRPs.

“Currently the plan is said to be published on May 29 which is this Friday,” Nkasana told the committee.  

Tlhakudi said “various options for raising funds are being considered for the restructured or new airline”. 

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This BRP is just a big scam intended to fool the public and the rating agencies that business principles are being applied. The government has no intention of letting SAA be liquidated, no matter what the debt level is. Shortly, we shall learn that SAA (in whatever guise) has been “loaned seed capital” and that all is well with the New SAA. In other words, SAA has been bailed out once again.
Politicians and their friends and families have too much to loose on this SOE. The free flights must continue.

seemingly unnoticed it passed us……Dudu is declared a delinquent……. director! vat so!!

Aren’t SAA now supposed to start afresh with a small charter fleet of Beechcraft Kingairs, Pilatus PC-12’s, and Cessna Caravans…? (…in order to contain future losses)

End of comments.

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