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.
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.
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.
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.
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.