JOHANNESBURG – South African Airways (SAA) said on Friday it has applied to enter ‘business rescue’, a form of bankruptcy protection it hopes will save the cash-strapped state carrier from collapse
SAA, which has been making losses since 2011, is deeply in debt and has received more than 20 billion rand ($1.36 billion) in government bailouts over the past three years — all of which has achieved little more than keeping it barely afloat.
A government memo on Wednesday said President Cyril Ramaphosa had ordered SAA to seek the business rescue — in which a specialist takes control of a company with the aim of rehabilitating it, or at least securing a better return for creditors than liquidation would bring.
After years of government dithering, the distressed state entity’s crisis was increasingly seen as a test of Ramaphosa’s resolve to carry out badly-needed economic reforms.
Years of corruption and mismanagement have put several state owned enterprises in dire straits, including power utility Eskom, whose financial problems have left it struggling to keep the lights on. [nL8N28G0KN]
South Africa’s credit rating is teetering on the brink of junk largely because of these problems. All agencies but Moody’s have cut its rating to below investment grade, risking billions of dollars of investment outflows if Moody’s does follow suit.
How Ramaphosa handles SAA’s restructuring, in the face of fierce opposition from unions, could be taken as a signal his resoluteness in a much bigger, immanent battle with Eskom.
A strike last month left the airline without enough money to pay salaries, then two major travel insurers stopped covering its tickets against the risk of insolvency. It has been granted a 4 billion rand ($272 million) lifeline from the government and banks to launch the rescue plan. [nL8N28F0D5]
On Thursday Les Matuson from Matuson Associates was appointed to restructure the company. He is already reviewing payments to creditors and is scheduled to come up with a plan for how to handle them within 25 days. [nL8N28F0D5]
His appointment spurred an outcry from two of the largest trade unions at SAA, the National Union of Metalworkers of South Africa (NUMSA) and South African Cabin Crew Association (SACCA), who argued that he should have been independently chosen.
“We don’t trust a process where a shareholder and the board get to hand pick a business rescue practitioner,” SACCA President Zazi Nsibanyoni-Mugambi told Reuters on Friday.
“We can’t leave it to the same people that we’ve been complaining about for many years,” she said.
The opposition Democratic Alliance (DA)’s shadow minister for public enterprises, Ghaleb Cachalia, approved the plan, saying: “we hope that ANC government will take a stand … in the best interest of South Africa and the economy.”
SAA flights appeared to be operating normally according to the existing schedule, ahead of the publication of a new provisional flight schedule soon.
($1 = 14.7075 rand)
(Reuters)
