Bye bye SAA

4 December 2019 may be a turning point for SOEs.
Rough landing for the troubled airliner. Image: Shutterstock

Government’s decision to place South African Airways (SAA) into business rescue represents a big change in South Africa. 

It may not be a true ‘Thatcher’ moment, but it is significant as it shows that government, or the president at least, has acknowledged that government cannot run an airline and that there is no more money to throw at the problem.

This will result in two options.

The first is a liquidation scenario and the second is for government to sell (or give) the airline to a third party; in essence, to privatise it.

It may also become a blueprint of how the government will deal with other functionally bankrupt state-owned enterprises (SOEs).

However, in SA nothing is predictable and rational. President Cyril Ramaphosa may experience significant opposition from factions within his ruling party which will complicate matters.

Business rescue

But first, let’s look at the business rescue process. Despite the name ‘business rescue’, its intention is not to keep the business operational. It is mainly aimed at protecting the company against a liquidation application from creditors, and trying to ascertain whether continuing with operations would give creditors a better outcome than an immediate liquidation would. 

This decision is the responsibility of the business rescue practitioner. This practitioner should be an ‘independent’ and needs to be appointed within five days. This can be one or more individuals or even a company.

The practitioner basically replaces the existing board and management and assumes all decision-making power. It is also highly unlikely that this practitioner would be able to turn the bankrupt SAA around as government has poured R57 billion down its throat since 1999. 

It is also highly unlikely that SAA is profitable on an operational level. 

The airline battled to pay salaries in November and there is a serious cash flow problem, but the R4 billion the airline received from commercial lenders and government will allow the airline some breathing space. 

Unfortunately, the nature of the airline business will limit this period.

The airline business is built on trust. No one will fly on an insolvent airline. Why would they? People have options to fly on several airlines and there are other options in South Africa. Why would anyone take the risk?

SAA can, therefore, expect to see a significant drop-off in bookings, which would amplify its cash flow problems and accelerate the race to liquidation.

However, there may be one other option on the table, and that is the sale of the airline. The ‘P’ word has never been popular within the ANC, but according to the law at least, the business rescue practitioner should be independent and have the mandate to take such a decision.

It remains to be seen how independent the government allows the practitioner to be.

Ramaphosa’s power position

The process will not be straightforward. There seems to be significant opposition from within the ANC to pulling the plug on SAA. Cosatu already stated it was aggressively unimpressed with the way the president, Public Enterprises Minister Pravin Gordhan and Finance Minister Tito Mboweni took decisions without informing all stakeholders, especially partners of the ANC.

Even on Wednesday morning, government’s legal team indicated it would oppose trade union Solidarity’s application for business rescue. A few hours later the letter addressed to ministers and deputy ministers was sent, indicating a radical change in plans. It is clear that it was not a cabinet decision, but one from the president. 

It is yet unknown what triggered the decision. 

Was it a unilateral political decision or did a creditor threaten to bring a liquidation application? Time will tell.

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“Stakeholders” are “aggressively unimpressed” – well so are the taxpayers who are funding this failed “radical transformation” experiment.

Fortunately we as taxpayers are not powerless. There is no reason to book any ticket on the state carrier. Let’s stop throwing good money after bad. We can hasten the needed pulling of the plug by withdrawing our money.

So much of our tax money has already been thrown at this problem, every taxpayer in SA should be getting free airline tickets for the next decade.

Creditors, please pull the plug on all SOE,s. We are sick of incompetence and trade unions

what chaos and anarchy will ensue by the unions and workers?

Sometime the government has to face this monster they created. It will be ugly for a while. The longer they delay that day of reckoning the bigger this monster will become. Question is – do they have the guts???

I’ve stocked up on popcorn and gas. Should be fun.

Now the president means business. Atleast for the first time someone is thinking about the tax payer than the corrupt politicians and the useless trade union.

Watch how this country will turn around because we have a president who now means business and is putting on his rational hat and taking this country to the next level. Hope they could also privatise the municipalities if there ever was that option.

before we get ecstatic lets first see what the rescue ” PLAN ” entails?

Don’t fool yourself thinking Ramaphosa is thinking about the taxpayer!
He thinks ONLY of his party, not even his country!
His hand was FORCED!

I agree Louise and. like Eskom, I think the whole charade is just a wriggle to divert lucrative assets into ANC aligned hands. Watch Motsepe Aviation or something rise with with juicy taxpayer funded plums from the SAA ashes.

LOLanonymous

CR is just kicking the can down the neverending road of waffle

Business Rescue is 24 months too late.

“Now the president means business” LOL,LOL and LOL again.

Just HOW can he turn the country around when it is falling much, much faster than the kindergarten “positive” steps can counter.

SA has already RUN OUT OF TIME. ONLY drastic and immediate action will get SA out of the ANC caused meltdown.

Hands up who thinks our president has the cognitive ability to do the correct thing.

Cyril, be brave, put the whole country into Business rescue, let it be run by the people qualified to do it , basically, that is what you are hoping to do with SAA, albeit too late! But you just may be able to rescue SA Inc, if you put your hand up and ask the correct people to assist!! The ANC does not fit the job description, nowhere close!!!

But if you can seperate your esteemed position from your Party, and consider SA Inc’s future, this is the solution!!!

Business rescue for the country is the IMF

But Russia has Aeroflot and China has China airlines – Can we not even get communism to work here????

China Airlines is Taiwanese.

LOL casper the friendly ghost… Ignorance makes you a troll.

Maybe someone is trying to save face.

SAA is fatally and irreversibly bankrupt and even throwing money at it wont save it in the long run.

The risk is you look like a complete …….. ( please fill in something nice) if you continue on the same ludicrous path.

Guess they then look like complete ……… as they have made the same stupid mistakes over and over again. Like children and even donkeys are said to bumb their heads more than once. Not as many times though.

Someone needs to be fired.

Please spell bANCrupt correctly…:)

One down 19 to go..Proof that Government cannot operate anything resembling a business..All bets are on that the Tax Payers money used for SAA will be redistributed amongst the other SOE’s, including the ludicrous NHI to be implemented. So no saving at all, don’t be fooled..Just more for Eskom..Although a step in the right direction, the abyss is so deep the only solution eventually will be an IMF bailout with dire consequences

It is not that they cannot. They don’t want to. SAA is not a business, it is a front for laundering taxpayer money into ANC connected elite hands, while at the same time providing free travel for the looters and their families. A business cannot “run” like this. Nothing more.

If we don’t fly SAA they will be grounded within a month.

The real tragedy is that management and ANC-meddling caused this crisis, not the key personnel who keep SAA aircraft in the air. The expertise to run a world-class airline is there and should in fact be nurtured instead of being destroyed. A positive business rescue outcome at SAA will moreover set a precedent for sorting out the mess at each of the other SOEs.

Despite “business rescue” / bailout…it’s just going to get worse for SAA’s income: events like these dent the confidence in an airline.

Some local & global travel agents may now not book SAA, even for the slightest fear their customers may be left stranded somewhere. Same psychological effect applies for individual/direct bookings.

SA Govt is like a proverbial airliner, approaching a mountain range with one engine failed/shut down & other engine already on max power. To clear the approaching ridge, the “captain” (ANC leadership) has three choices:

(A) Change the direction of the flight around the mountain range (implying by making real econ reforms) which will be political suicide for ANC.

(B) Throwing off weight from the plane by discarding support for loss-making, and non-essentail SOE’s (like SAA) to gain altitude.

(C) Or none of the above. The irresistable ANC (in fact the country) will meet a non-moveable object.

Well stated Ryk. Lets see if they ( the ANC) have the will to let this go down in style … without violence we hope

Great move by Ramaphosa. ‘Business rescue’ means that the ANC cadres and the greedy unions now have no control whatsoever over decisions taken by the business rescue team. So cutbacks in staffing must ensue and profitable ANC side hustles related to supplying SAA with services at exorbitant prices come to an abrupt. It’s time the greedy irresponsible unions were given the middle finger, and this is it. A green shoot.

The bankruptcy of all SOEs and most municipalities, the rising unemployment and rampant corruption are the expected and normal results of the chosen political system.

Naive and ignorant proponents of socialist strategies always cling to the mistaken belief that “this time it will be different”. They always say that previous socialist project failed because “the wrong people raised to positions of power” and that “corruption led to the implosion of the system”. They believe that they simply have to elect the “right” people and stop corruption for socialism to work this time around.

Two types of people grasp at socialist ideals. One group are those criminals who demand the property of others, and the other group, who enable the first group, are those naive academics and “social justice” advocates who fund their benevolence with other people’s money, never their own.

They ignore the fact that the socialist or collectivist system enables and incentivises the most unscrupulous individuals to rise to the top. Corruption is inherent in the socialist system because its very existence depends on the perversion of the law. It is simply impossible to have a socialist system that has ethical, efficient and moral leadership and is free of corruption. These factors, like humane warfare, are mutually exclusive.

If the voter wants a system that is efficient and relatively free of corruption, a system that enables economic growth and rising wealth, then free-market capitalism with individualism and the respect for property rights is the only option.

Therefore, if we want different results, we have to choose a different system.

100%…the rising unemployment and rampant corruption are the expected and normal results of the chosen political system

Agree, Sensei. Destruction of incentive is at the heart of Communism/Socialism. To quote an old Polish/Russian proverb: ‘If I stand up, I get 1000 kopeks a month. If I lie down, I get 1000 kopeks a month. Why stand up?’ There can only be 3 reasons for someone to be a Communist: 1) They are utterly ignorant of history (over 50 nations destroyed by Communism) 2) They know it’s a farce but love the power and money from positions in govt. 3) They are demonically deluded – ‘We will do it differently here.’ No. You. Won’t. As proven by history.

So CR has finally realized that the children have made a muck of things.

And South Africa needs IMF intervention soon. The sooner this happens the better. We need to take the pain now to fix what this useless government caused. Or we are going the banana republic African way.

Come on Cyril – time to euthanase. Forget life support via further bailouts and the business rescue process. BR will take a long time and will require more funding of a loss making business. The country cannot afford a soft touch here. The extra cost to the taxpayer from January 2020 until SAA is wrapped up and done will be many more than a mere R4bn. Don’t pour good money after bad…

And you’re setting a bad base for getting the other SOE’s sorted out.

Luthuli House busy preparing a statement taking credit for this bold move, next week they will blame WMC for forcing them into this position.

I suggest whoever gets appointed as the BR go read the interview in today’s FM in which the former CEO of Comair Erik Venter comments on whether SAA can or should be saved.

The President’s hand was almost certainly forced by board members taking fright at the significant risk that they would attract personal liability for allowing the business to trade recklessly whilst hopelessly insolvent and illiquid. The withdrawal of insolvency cover by the major international reinsurers will have had a calamitous effect on forward bookings and cancellations.

Maybe forced by the Solidarity application to try and limit the dirty laundry coming out, looting all the while?.

So CR has shown that he actually has a pair, hopefully one day Jamnadas will find his.

R4bn now (call it what you want), and Pravin, WHEN can the taxpayer look forward to a similar “provision” in the near future?

I must say that can was kicked rather hard down the road!

Politicians want their free flights and labour wants their jobs but the fact of the matter is that the entity is bankrupt.

It’s sad that a small percentage of people have been allowed to destroy the lives of many. There are good people that go to work everyday to feed an cloth their families, who have not been part of the mismanagement and corruption, and have not benefited from it. But they are the ones that will suffer most? But surprisingly they will probably not change their vote come next election.

By not changing their vote and showing that bad governance has consequences… the hard working non-vote changing people are enablers and should just accept their fate.

Those headlines will keep coming until one day, when one headline will read:”Bye bye ANC”

Voetsek, you waisted hard working people’s money!

Reality and facts don’t care about how we feel about things! We need to get that into our heads. Our feelings about something, anything, does not change reality. We can cry and dance and protest and oppose and fight back all we want. Just like nothing could stop the demise of Apartheid, so nothing will stop the demise of the this current regime.

Things take a lot of time in 3rd world countries. Just another reason S A is 3rd world. Its inept government (junk soon) has cost all of its people EXCEPT THE POLITICALLY CONNECTED.But many of them will go down soon.

It is no coincidence that we entered stage 2 loadshed. Stock up on Christmas candles is the communist response.

A line has been drawn.

We do bot need a national carrier that performs like SAA has.

I wish I was the business rescue practitioner that landed this contract. Billions and billions and billion more of fees. This mess will take 4y to resolve.

Advice to firms : do not take this project as the reputational damage will mean nobody else will deal with a law firm associated with this trough.

COSATU will drag this country into the abyss, they are like trying to fly with concrete blocks chained to your ankles.

“Cosatu already stated it was aggressively unimpressed …”
The Taxpayers are also aggressively gatvol (feedup) to fund the bailouts of these corrupt, disfunctional and bankrupt SOE’s.

Everybody comments on passengers, but what proportion of recenue is generated by cargo. I was led to believe that cargo is the cake and passengers the icing in top?

Is there one solvent SOE????

There is no need to privatize it.
Just close the damn thing down.

End of comments.

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