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Business rescue might just keep ailing SAA afloat

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South African Airways - [Google Images] South African Airways - [Google Images]

Solidarity’s proposed business rescue could be used to determine the extent of the rot, and this could be used to plot a recovery plan, an economist says.

An application by trade union Solidarity to have South African Airways (SAA) placed under business rescue may be beneficial if it could be used to compile a real picture of the airline’s state of affairs and enable government to find a way to pull the failing enterprise from the precipice.

This is the opinion of at least one economist, who believes SAA is on its deathbed and, should something not be done soon, it may be beyond saving.

News emerged yesterday that South African Airways Technical (SAAT), which has thus far been the only profitable subsidiary in the SAA group, could be at risk of losing the business of Comair, its biggest external client, and with them a large chunk of their R702 million annual profit.

The Comair news comes days after Solidarity announced their intention to approach the courts in order to have SAA forced into business rescue after the airline announced losses of R3.7 billion for the previous financial year, and a further forecast loss of R4.8 billion for the upcoming year.

The recent auditor-general’s report into the enterprise also found that poor management, record-keeping and fiscal responsibility meant that the airline’s liabilities exceeds its assets by a massive R18 billion.

On Friday, Solidarity wrote a letter to President Cyril Ramaphosa and ministers of finance and state enterprises, Nhlanhla Nene and Pravin Gordhan, respectively, asking them to join the application.

In the letter, Solidarity expressed its concerns regarding unsustainable and ineffective management models and proposing the privatisation of the airline as the only viable solution.

They will announce their legal strategy in this regard on Thursday.

Head of economic research group economist.co.za Mike Schussler agrees that the ailing national carrier is in need of urgent care.

“Looking at SAA currently is like looking at your sick grandfather, lying on his deathbed, while no one knows how to tell him he is dying,” he told The Citizen.

He attributed the state of affairs to poor management and board decisions.

“The patient has been receiving the wrong medication for far too long, and under the former board chair, wasn’t even in the right ward, so there is very little that can be done to bring him back from the brink,” he said.

While cynical about the airline’s chances of revival, Schussler still has hope.

He believes Solidarity’s proposed business rescue could be used to determine the extent of the rot, and then this insight could be used to plot a recovery plan.

However, he doesn’t believe privatisation is an option, saying it would be impossible to sell off an enterprise so indebted. He also doesn’t believe another bailout from government is feasible, since this would lead to a negative backlash from ratings agencies.

Instead, he proposes a private-public partnership, similar to that of Comair and British Airways, in which the national carrier is operated by the external partner.

“We need to partner, and we need SAA to listen to, and take instruction from, the said partner. SAA has no value as its liabilities exceed its assets.”

He concedes that business rescue will result in many job losses, but also believes SAA currently has too many employees when compared to the number of routes it operates on.

“There are too few routes, with too much staff, and this can’t be funded by taxpayers forever. It is now make or break and they can’t play political games with it. That will come back to haunt us,” he said.


 

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