Government expected to support restructured SAA until March 2024

With 78% of the airline’s domestic employees to be retrenched. 
Discussions with potential strategic equity partners will be revived when the global aviation industry is 'back on its feet'. Image: Shutterstock

On top of being expected to raise R10.3 billion for the restructured South African Airways (SAA), the rescue practitioners’ final plan also proposes that the state support the new airline until it becomes profitable and self-sustaining —  which is only likely to be in 2024. 

Business Rescue Practitioners Les Matuson and Siviwe Dongwana released the long-awaited 110-page rescue plan on Tuesday evening. The plan was released a day later than the June 15 deadline the BRPs were granted in their fifth extension since December 2019.

Read: SAA rescue plan extension granted

Over the past ten years SAA has been under severe financial distress and has not made a profit since 2011, incurring R27 billion in losses since 2012. 

The final plan puts the state’s bill for settling SAA’s current liabilities and funding the restructured airline at R26.7 billion.

This amount includes the R16.4 billion that was allocated in the February budget to pay off government-guaranteed debt and interest over the next three years. 

Running costs

The rescue plan shows that in the initial phase of the restructured airline, which will gradually come into operation from June, there will only be domestic travel as outlined in alert Level 3 and 2 of the lockdown regulations.

The routes that will be retained are Cape Town, Durban and Port Elizabeth, with six aircraft in its fleet until February 2021.  

In the beginning, SAA restructured will only retain 1 000 members out of the current 4 622 domestic employees; this means 3 622 (or 78%) of SAA’s domestic employees will be retrenched. 

The inceptive capital injection for SAA restructured has been pegged at no less than R2.8 billion, which will go towards paying post-commencement creditors owed R800 million; the rest is working capital. 

The cost for the workers’ voluntary severance packages is set at R2.2 billion; their termination of employment will be done through mutual agreement or a section 189 retrenchment process. 

An amount of R600 million has been set aside for concurrent creditors and R1.7 billion for leaseholders – both of which will be payable over a period of three years. The government also has to honour liabilities of approximately R3 billion for unflown tickets.

At the end of this list of commitments, the government is also asked to agree to support the company in what the BRPs describe as the “post-ramp up” period until it is self-sustaining and profitable. 

According to the BRPs assumptions, the airline will only start making a taxable profit in the 2024 financial year, incurring losses of about R3.2 billion, R2.3 billion and R917 million in the preceding years. 

Gradual swell

Depending on the market conditions and passenger demand, SAA restructured will expand its operations to regional and international travel when the country moves to alert Level One. This will have a concurrent effect of increasing employee numbers to just under 2 900. 

Matuson and Dongwana state that former employees will be given preference “subject to competence skills and suitability”. 

The airline’s fleet is also expected to grow to 19 and 26 aircraft between March and December next year. 

Some of the conditions that need to be met in order for the rescue plan to be adopted and implemented is approval by creditors, the Minister of Public Enterprises as the executive authority of SAA and a representative shareholder of the company. Employees should agree to the staff reductions and the government should commit to providing the funding. 

The plan states that the government should provide a letter where it expresses its support to fund the plan by July 15. 

Discussions with potential strategic equity partners will be “revived once the global aviation industry is back on its feet,” said Matuson and Dongwana. 

Should the conditions above not be met by July 15, “the business rescue plan will be deemed unimplementable”. A meeting will then be held with creditors to amend the plan on July 17. Should this fail, the BRPs will discharge the rescue.

Preliminary response

In a statement giving a “preliminary response” to the rescue plan, the Department of Public Enterprises (DPE) said the state as the sole shareholder of SAA supported the plan, “where it results in a viable, sustainable, competitive airline that provides integrated domestic, regional and international flight services”.

The department said the BRPs have been given sufficient time and resources in the R5.5 billion post-commencement funding to restructure the airline by “stemming the tide of wastage, an excessive cost-structure and cash burn”.

“We will assess the plan which, we are concerned, might have not been adequately accomplished,” it said.

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Here is my answer: NO

In the private sector it costs about R500,000 to create a single job.
Using the R10.3Bil to only have 2900 jobs means that it took R3,5mil to create a single job. So for every 1 Job that is created at SAA 7 others could have been created.

Additionally we don’t even know how much it has cost to keep this Zombie SOE alive up until this point.
Government preaches about creating jobs but at what cost?

With unemployment of over 10mil government would need to spend about an additional R5Trillion in just this regard and do so effectively to keep their promises.

Politicians make it seem so difficult to run a country and make decisions, this is why the voters are scared of electing other people into power.

Solution
Government to not have any SOE and subcontract municipalities. Then all they have to do is keep the business accountable and distribute the budget effectively.

As a matter of principle vote with your feet when choosing and airline for your next flight.

I reckon that at the back of the chubby chemists mind is the communist dream scenario; no competition. Methinks he is going to do what SAA did before; use the taxpayer’s loot and his crooked fat finger on the scale to crush private companies and create as close to a monopoly for SAA to operate in as he can, by fair means or foul, mostly foul. He is a misguided man like Pol Pot or Mugabe, but not stupid. So I suspect he wants a captive market for SAA only to operate in, funded by the taxpayer, run by a commie chemist. What could possibly go wrong.

It’s only about ensuring the ANC doesn’t lose more votes. It has zero to do with what is in SA’s best interests. And we taxpayers are footing the bill.

Sadly, there is no way out of this conundrum as the number of sheeple voting for the ANC easily outnumbers those with actual brains.

The end game is another Dumbabwe – and there is no way of stopping it.

I agree fully but how do we put our foot down (effectively)? I feel like everyone thinks it’s a bad idea but Government just goes ahead with these decisions anyways.

Change is happening, more and more communities are waking up and standing together to fight poor governance around the world.

Before countries use to go to war to claim new land now the land is being claimed citizens as we see in Europe and Spain, these countries are falling and states governing themselves.

We just need a lot more of that.

As for me, mine and my employees, it will be business as usual since about a decade or two ago – we fly anything but SAA; and if there is nothing else available, postpone the trip until there is, or simply take to the road.

Vote with our feet! SAA does however get bookings from civil servants who are all compelled to use ONLY SAA! Hence naval officers in CT flying on work trips complain bitterly about not getting confirmation or flight information till the very last minute….
Nevertheless, for the rest, we’ll continue to vote with our feet…

Citizens…. Readers… One sentence… Don’t fly saa!

This is an uncalled for and unmitigated waste of scarce and vital public funds that could be used profitably towards many areas that lead to positive development in this our beloved country.

Stop this madness already – you can’t keep doing the same thing over and over again and think it will bring different results because you ‘hope so’.

The “business rescuers” have at last seen the light. Follow government instructions, or else. At least they have “earned” a little bit of money in the process.

Trying to predict which existing airline will survive one year is difficult. To start a new venture in the sector now is just plain stupid.

Why would slurping at the trough of taxpayer’s money suddenly stop in 2024 ?

Business Day says it will cost R26b.

Which is correct ?? Regardless. pie in the sky dream. Govt ( AKA taxpayers ) do NOT need an an airline .

Close another useless business DTI ..It adds no value.

Stopped reading after 1 st paragraph.

Ha ha ha ha ha ha

SAme here…. Looked at the Headline and went straight to the comments.

All I can say is…. disaster awaits.
We got idiots running the government and we got idiots running SOE’s

Urgent and united action by a coalition of opposition parties is required to bring the election forward and vote these retards out.

Start ensuring all 11 million smokers vote and they are out. What can be more easy. How many other rights have been trampled on.

The time is now to stop this insanity.

Profitable and sulf-sustaining by 2024? Mars will be colonised before this happens. Why this obsession with SAA? Be done with it allready. This government should stay out of anything business related. They only know how to take, not how to create anything sustainable.

This is beyond sick

This country seems to be able to find money under every rock.

Where have they been hiding it?

One goon announces more nuclear on Sunday, the next one a new SAA, then another has invented an advanced level 3 condition for restaurants, hairdressers etc.

And then Julie is going to hold CR responsible for the corona deaths, him and his clowns having contributed absolutely zero to the pandemic.

To top it CR wants the youth to help rebuild what the cANCer has destroyed!! How by burning tyres and kicking rubbish bins over.

All the clowns want TV time. They are on steroids too.

My old Staff Sergeant Snakes Snyman in the army always said in times of crisis, keep a cool head and only talk if you can help the situation.

At this stage, we are all aware of the fact that interest rates can go into negative territory. We have even seen the price of oil go negative in the USA recently. Few of us are aware that salaries and wages can go into negative territory as well. When the supply of labour is larger than the demand, then the price will decline. When, like in South Africa, the supply is exploding upward while the demand for labour is decimated by socialist policies, the price of labour goes negative.

Any sane person would say that nobody will seek a job where he has to fund his own salary, where he has to pay to be employed, but this is exactly what is happening in South Africa now. SOEs are running at a loss to keep workers employed. That means the marginal cost of labour is negative. The labour is unproductive and is a drag on society. The salaries are not funded by productive activity, or by the adding of value. The workers are unproductive at that wage. The cost of the wage is higher than the productivity of the worker. He is a parasite and not a productive worker.

This situation is typical under communism. Labour has negative marginal utility under socialist rule. That means society as a whole is paying the salaries to keep society as a whole employed. The members of this communist regime are paying to have a job. They are funding their own salaries. They are cannibalizing and plundering their communal asset to pay their salaries. But then again, this is how any communalist system works, and is described as “The Tragedy of the Commons”. SAA is our Tragedy of the Commons. We have got so many tragedies though. Every SOE, every government department and 90% of municipalities are tragedies of the commons. Total disaster and destruction of value.

This is insanity, but because the socialist are insane, it somehow makes sense to them. It does not make this farce sustainable though.

Did you ever wondered what the rules of “communist” monopoly (Antithesis in know) board game will look like?

Isnt this a lose/lose for everyone?

Four out of five employees get unemployed AND

Billions need to be spent in an uncertain industry with little visibility of the timing of a return on this colossal investment.

Government should call 5 top businessmen and ask them if they would approve such a deal

And nowhere do I see that they account for the real possibility of a reinstatement of lockdown, even though we know we’re heading that way. This is a bad plan, based on bad ideology, turning a bad idea into bad business, with the inevitable bad outcome.

Here is the thing: the Taxpayer will fund the losses which is unethical by SAA and the Govt. The reason why I say so, is that there are many private Companies in these times not making it, some huge conglomerates with many more employees that SAA and yet, the Taxpayer is not allowed to bail them out. MR/MS Voter: DO NOTE VOTE ANC AT THE NEXT POLLS or must i spell it out in even bolder letters?

“DO NOT VOTE ANC AT THE NEXT POLLS”… That should have been do “NOT” which I have corrected, but commentators here are a tiny minority which has zero influence on the outcome of the next election.

Your vote is as equal the labourer working in my neighbour’s garden and his unemployed 19-year-old child.

Let that sink in …

11 million smokers half has never voted?

Not one but most are slightly annoyed.

The ANC mustered just over 10 million votes in the previous election.

Then ask. Did they annoy people that what to have a beer? The list is long.

You dont have to win ANC voters over just get those that has never voted to vote and you will see a new dawn.

Can be 100% sure, even if i have to walk, but saa will be 100% boycotted by myself – business or pleasure

Reposted-Let’s get something straight it’s not costing government anything it’s costing us yes the taxpayer R26,4 bil and will be closer to R40 bil as there is no guarantee of success.secondly this is no more a government issue this is stakeholder theory issue for the constitutional court.Our executive is reckless and destroying shareholder value(for you and I , the citizen), all they are doing is renaming the problem and funding a bankrupt NON TAX PAYING ENTITY why not bailout tax paying entities that do contribute to the fiscus like Comair, Edgars etc.This is now a constitutional issue on two front 1 the shareholder theory (the custodian of our taxes not maximizing value for the citizen) 2 – should non paying entities be bailed out using tax paying entities funds while the same entities going belly up paying taxes are by default funding SAA……..come Ahmed Kathrada org , Nelson Mandela org , Afriforum, we need government to account for decisions it cannot just make a decision without any consequence

Sounds like a “Pie In The Sky” Plan intended to placate the DPE and Mr Gordhan’s wish (instruction ?) to retain SAA at all costs.
Obviously the cadres will be eyeing a new feeding trough if/when the New SAA emerges.
All built on wishful thinking and fanciful, rose tinted projections into the future. All intended to fool the taxpayers and the rating agencies.

Here’s a conundrum I can’t get my head around. Government is consistently bailing out useless SoE’s and now sits with a massive allocation of funds to ward off the covid 19 virus and continues to provide grants to a whole host of hangers on. companies are throttling back staffing to remain afloat – thus we have more people unemployed most of whom will claim unemployment support for a period of time yet UIF is based on employees – so where are the funds going to come from.
The country is incapable of raising funds to meet all these commitments so they will turn to those that can provide them with funds – be it the IMF or the Chinese but the reality is these funds will require repayment but the government can never pay back these loans ever.
Then we have WMC and the urge to expropriate capital and land – I was always taught that if you raid the piggy bank and when there is nothing left turf out the piggy bank and go and beg on a street corner because you have effectively slit your throat – this is what this government seems to be aiming at.

I don’t see many people getting into one of these things, esp as the math pass rate is now 30% or something ridiculous. The Head of technical is probably an ex pharmacist and her deputy a teacher. Soon, very soon, one will crash

Be sure white privilege capital will be blamed for coming recession and the solution expropriation Of white property

And worst of all…will do NOTHING about this.
No rates, VAT or PAYE boycott-NOTHING!
watch TV, Post comment son Facebook yes-but DO NOTHING
So if are lazy, cowardly and divided we must live with the orders and wishes of the ANC gang

It is blatantly clear that the current ruling party is self serving, with no regard for the people of the country.

Challenges such as internal transport and road conditions, let alone the poverty and high unemployment!

Redirecting the funds to infrastructure programs that creates employment and improves the country as a whole would be a far better option than pouring funding into a bottomless pit.

Dear Mr Mboweni,
What do you need from us to end this craziness? Money to take you and the government to court for wasteful and fruitless expenditure over the last 10 years? And which is expected to continue over the next 10 years? Signatures or protest marches? What?
About 99.999% percent of South Africans have no knowledge of running an airline profitably under normal circumstances – and during the next 3 years that 0.001% who possibly could, wold probably not agree to do it and would most certainly not succeed. Profitless during the last 10 years and foreseeably over the next 10 years, SAA has been a total waste of money. It should be spent on uplifting Black children’s education in township schools, not on providing flights subsidized by taxpayers for middle-class privileged flyers who in any event would probably fly with another airline. Alternatively as another commentator mentioned these billions could also be spent creating jobs for thousands of workers. Please tell your colleagues they are wasting the lives of their voters with this albatross.
Spend this money on equipping your voters to survive the economic crash caused by your party over the last 15 wasted years and more lately the virus rather, than on the few privileged elite in SAA, government and the party. Please.

When these kind of people are in the forefront of leadership, there is no one and nothing to follow. A lot of individuals in politics are ill equipped for any leadership role.

The implementation of the undertakings of the fiscal policy has been, for many years, ingloriously flawed. The allocators of capital of this government are not at all astute politicians, evidenced by their lack of understanding the need to be constrained by a profit/loss account. This is not even accounting, it is bookeeping. Sub-elementary fundamentals our dear purse holders cannot grasp.

hereshoping
I have read every comment above. They should all be passed onto Government and see if they understand the sincerity of the comments. I for one will never ever fly SAA again, the service or lack of it is disgracefull, The only ones to fly will be non paying Government workers, so lets see if they can servive,

What makes SAA more important than the Land Bank? Through no fault of its own, the bank defaulted recently on some debt. (Drought, Expropriation without Compensation policy, mandate that forces bank to lend to poorer emerging farmers.)
Treasury backtracked on promise of a R3bn bailout, so this important institution has now made alternative financing arrangements – save the Land Bank BEFORE SAA!

End of comments.

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