The SAA business rescue practitioners have recently declared their intention to complete all processes by the end of March, leaving the airline “solvent and liquid”.
But can it?
There is a gigantic hole in the funding plan for the rescue, which has not been resolved. The gap arose because, though the government promised to fully fund the rescue and restart of operations — which the practitioners priced at R10.3bn — only R7.8bn has so far been received by SAA.
This is strange because last October the National Treasury allocated R10.5bn to SAA that was intended to fully fund the remainder of the business rescue process. At the time, public enterprises minister Pravin Gordhan assured MPs that he had made it very clear to SAA and its future partners they should not expect another cent from the fiscus.
There was, however, a problem they had not taken into account: while the R10.3bn was almost enough to fund the SAA rescue, the company’s subsidiaries also needed capital. To solve this problem, Gordhan persuaded the Treasury to allocate R2.7bn of the R10.5bn to SAA Technical, Mango and Air Chefs. This was formalised in a special appropriation bill in parliament in January. But the consequence was to leave SAA short of crucial funds to pay off its liabilities.
A spokesperson for the practitioners, Louise Brugman, says the amounts still to be paid out include R1.7bn to aircraft lessors; R600m to concurrent creditors; and R1.2bn for unflown ticket liabilities. This takes the amount still required to settle SAA’s old obligations to R3.5bn. (This is actually R1bn more in total than was initially requested for the rescue, but as both the department of public enterprises and the practitioners have altered their numbers along the way, this is the not the main point here.)
Either way, come August when these liabilities become due, SAA will not have the money to pay them
Brugman says it is still perfectly possible for the practitioners to hand SAA back to its board and shareholders with this funding gap because these are sums to be paid out by “the receivership” no earlier than August. By then the rescue will be over. The receivership is best described as an escrow account to finalise all the outstanding liabilities and payments. These are ring-fenced from the accounts of the new SAA.
But is hard to see how, with R3.5bn of unfunded liabilities, SAA would be “liquid and solvent” at the handover. It is a question the practitioners, who, last week, issued a long report on their achievements, have not answered.
The department of public enterprises says it is inaccurate to describe the R3.5bn shortfall as a funding gap because, it says, it has requested more money from the Treasury to cover this amount.
“The total restructuring is R14bn over three years. R10.5bn was made available in the current financial year. The remaining R3.5bn is for concurrent creditors (R600m), lessors (R1.7bn) and unflown ticket liabilities. Calling this a shortfall is incorrect as it was anticipated to be funded through an additional appropriation and such an application from the department of public enterprises is with the National Treasury,” it said in response to questions.
But anyone listening to finance minister Tito Mboweni when he presented the budget in February would know this is not how the Treasury sees it. Mboweni declined to grant this request in February and gave no indication that he would do so by October. In response to questions about this on Tuesday, the Treasury said that, apart from amounts already allocated, “no further funding for SAA is under consideration”.
Either way, come August when these liabilities become due, SAA will not have the money to pay them.
This will mean that, by October, the gun will be next to Mboweni’s head once more. To avoid scuttling the business rescue, which has so far cost R5.5bn in post-commencement financing and R10.5bn since then, another R3.5bn will have to be paid out of the fiscus. But as this money will only be able to flow from the Treasury when the appropriation bill has been passed early in 2022, there will be a good five to six months of anguish and uncertainty over SAA’s going-concern status as these amounts remain unpaid.
This is exactly what happened towards the end of 2020, when the funds the government had promised for the business rescue failed to materialise in time and only flowed six months later. That timing problem saw SAA mothballed in September, the state in which it largely remains with the exception of a flight in February from Johannesburg to collect Covid-19 vaccines in Brussels.
Between 2003 and when rescue proceedings began, SAA had received R31.2bn in cash bailouts from the state. By the end of the rescue this amount will have risen to R50.7bn. The trend suggests there will be more to come.
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