SAA is to be placed in business rescue, the government announced on Wednesday.
The move comes after a week of speculation on the airline’s future, which is loss-making and has been unable to raise funding to continue operations.
Public enterprises minister Pravin Gordhan said that business rescue was the best way of avoiding a disorderly implosion of the airline.
“Legal processes are under way to consider placing SAA in business rescue because at this stage that is the best way in which to reposition and restructure the airline into a sustainable entity that is not dependent on the fiscus,” Gordhan said in an interview.
Business rescue, which is provided for by the Companies Act, is an attempt to rehabilitate companies that are financially distressed by restructuring their affairs. The objective is to enable the company to continue operating while being restructured, saving some jobs in the process.
Liquidation, on the other hand, implies the immediate death of the company and the ceasing of all operations. Business rescue will also stop any possible liquidation applications by creditors.
“As soon as the decisions are made, a business rescue practitioner will be put in place and from that point on the business rescue practitioner will run the airline and will consider the steps that need to be taken so that the end result of the restructuring process is a viable, financially stable and operational entity,” Gordhan said.
He said SAA had, on this basis, secured the necessary funding to enable it to continue trading. These are to be announced in due course.
He did not elaborate on what these arrangements were, but they could entail either a loan guarantee from the Treasury or a commitment by commercial banks to restore lending or a combination of the two.
Successive turnaround plans and government bailouts over the past five years have failed to have the necessary effect. The company burns about R500m a month. Financial statements that were leaked earlier this week showed that the company made a cumulative loss of R10.4bn over the past two years.
Two weeks ago, trade union Solidarity filed papers in the high court in Johannesburg requesting, as an interested party, that the court place the airline in business rescue.
The National Union of Metalworkers of SA, which led a week-long strike over wages, has said it was considering joining the application.
Business rescue is certain to result in a radical restructuring of the SAA business and possibly of its subsidiaries.
The SAA group includes the airline, maintenance operation SAA Technical, catering business Air Chefs and low-cost carrier Mango.
The government also has a feeder airline, SA Express, which is similarly loss-making and is not a going concern.
Failing state-owned enterprises (SOEs) have become a drain on the fiscus, requiring constant bailouts and raising the country’s debt burden. Among the actions that credit ratings agencies have suggested for SA to avoid further downgrades is to restructure SOEs.
Government’s intention had been to fix SAA to make it attractive to a strategic equity partner.
However, poor trading conditions, higher oil prices and lower volumes of sales have made the turnaround difficult.
SAA has also struggled to attract the necessary expertise. It has been without a CEO since June after the resignation of Vuyani Jarana. It had also been attempting to attract a new chief restructuring officer, following the premature departure of the previous incumbent.
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