The showdown in the SAA rescue saga is almost here: within days we will know what public enterprises minister Pravin Gordhan has in his hand and whether it was a bluff all along.
On Tuesday creditors meet again to vote on the business rescue plan. The unknown factor is whether there will be money to fund the plan. Its viability rests on government funding: it assumes R2.2bn for restart costs; R2bn to pay retrenchment costs for staff; and another R6.2bn to settle various liabilities, including penalty payments to aircraft lessors and refunding of passengers who have bought tickets.
According to the business rescue plan, this funding must flow by July 22 or the deal falls through.
So far, Gordhan and his director-general, Kgathatso Tlhakudi, have both held a poker face. Without actually saying in so many words that the money will materialise, they have persuaded, implied and cajoled so that the business rescue practitioners have based their plan on it. They have negotiated generous retrenchment packages with employees on the basis that the money required is real and does exist and that it will flow to them immediately.
But does it?
The Treasury, which would have to appropriate the R10.4bn for the plan, has said that there is no more money for SAA. It is already in for payments of R16.4bn over the next three years, which will cover existing debt and interest repayments. But the cabinet, in its most recent statement said that it supported the rescue plan. President Cyril Ramaphosa has also spoken positively about the survival of SAA.
The business rescue practitioners, Les Matuson and Siviwe Dongwana, say their understanding is that the shareholder will come up with the money. Trade unions say the same. When asked over the weekend for final clarity, the department of public enterprises said that "it is guided by the cabinet’s support for both a new airline and the concerted effort to mobilise funding from various sources, including from potential equity partners." Further information would be provided in due course, it said.
Apart from whether the money will materialise and hence whether the plan is viable, creditors have additional difficulties to weigh up.
Not least is the morality of voting in favour, which would endorse the idea that the government — despite fiscal constraints and a social and economic crisis of unprecedented proportions — will throw another R10.4bn at SAA.
The votes among creditors are according to the size of what they owed, making the banks the biggest creditors by a long way. But bank creditors, which are all guaranteed, already know they will be paid in full. If the first repayments do not flow to them by August 25, they have the right to accelerate and make a call on all of it.
Trade creditors, though, will get next to nothing. The dividend, which is 7.5c in the rand, will flow from revenue earned over the next three years. As the business plan also pencils in heavy operating losses for the first three years — without saying how these will be covered — the dividend payments are not assured.
The department of public enterprises has also made extremely generous offers to employees, way over the statutory requirement of an ordinary retrenchment. While generosity of an employer in distress is to be applauded, this will be for the account of the taxpayer, who doesn’t get to vote in this situation.
It is a necessary precondition for the plan to go ahead that it be endorsed by labour. While this is not a legal requirement under the Companies Act, it is a condition that Matuson and Dongwana have included. To secure the plan, all possible litigants must buy in.
In an ordinary retrenchment, employers are obliged to pay employees a week’s pay for each year of service. The department has added some sweet incentives. These include a month’s notice pay, back pay for salaries missed since April 1 and back pay of the wage increase that would have kicked in from April 2019, if SAA had had the funds to pay for it. If, after this, any employees has a package of less than R200,000, it is topped up to reach that level.
Employees in the bargaining unit are also offered a R100,000 “incentive” to take the voluntary severance package. The net result is that an employee earning R300,000 or less with five years’ service will walk away with the equivalent of a year’s salary, an extremely generous package by anybody's standards.
Asked how this additional expense can be justified to taxpayers who will pay the bill, the department said that this was part of addressing inequality and that the deal that had been negotiated requires "sacrifices from all." It was for this reason, it said, that it had not offered "the DPE sweetner" to pilots who have been well-paid.
For other state-owned enterprises where retrenchments are on the cards, the packages negotiated at SAA, set a precedent to aspire to. Unions must know that here is an employer that can be pushed way beyond reasonable limits in a bid to buy peace with labour.
The SAA business rescue saga has been the opposite of what was envisaged when the process began on December 5. Instead of a dispassionate set of administrators taking charge, it has been run from behind the scenes by Gordhan and the department, the shareholder who is responsible for the disaster in the first place.
Gordhan — backed by the ANC, and President Cyril Ramaphosa in particular — has had a clear idea of the outcome they wanted. After much wrangling with Matuson and Dongwana, the department’s vision is now fully embodied in the business rescue plan that will be voted on on Tuesday.
It has been a marathon of multiple manoeuvres by the tireless Gordhan, who now has exactly the plan he wanted. We are almost at the point where he must reveal his hand and bring the game to a conclusion.
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