Confusion surrounds last-minute changes to SAA’s business rescue plan, with one industry insider arguing it’s no longer valid.
That’s after a different proposal than that voted on by creditors in July was presented to parliament two weeks ago.
The sticking point is that the National Treasury’s R10.5bn bailout isn’t going where creditors had initially agreed. The way the plan was meant to work, concurrent creditors would get R600m (they are owed R8bn), those who leased aircraft to SAA would get R1.7bn (they’re owed R30bn), and the unfunded ticket liability — in other words, tickets paid for by passengers which SAA still needs to honour — was R3bn.
However, the plan presented to parliament, which hasn’t been voted on, is different.
In this new scenario, the unfunded ticket liability has been cut to R2.2bn, while the concurrent creditors and lessors appear to have been elbowed out in favour of maintenance division SAA Technical, subsidiary Mango and severance payments to staff.
Of the bailout money from the government, R2.8bn is now due to go toward severance payments, R2.7bn will be used to recapitalise Mango, catering arm Air Chefs and SAA Technical, and R2bn is left for working capital. It means that creditors and aircraft lessors will be paid over three years, not upfront as initially agreed.
One industry source, who asked not to be named, says: "We are currently seeking opinion on whether it is even lawful to capitalise bankrupt subsidiaries when the holding company is subject to business rescue proceedings. Shouldn’t those subsidiaries apply for business rescue proceedings separately?"
However, SAA’s business rescue practitioner, Siviwe Dongwana, of Adamantem, tells the FM that the new allocations presented to parliament were decided on by the department of public enterprises (DPE) and were not a business rescue plan allocation.
Since the department "is both the shareholder of SAA and by extension the ultimate shareholder of the subsidiaries, it is their prerogative to provide funding to the subsidiaries, over and above the funding of the entity in business rescue".
For its part, the DPE maintains that "the business rescue plan is still valid and SAA is still under business rescue as business rescue practitioners have not filed a notice of substantial implementation".
While public enterprises minister Pravin Gordhan is adamant that the state’s R10.5bn handout will be its last, SAA needs billions more to get up and running.
Last week, Gordhan said SAA’s total restructuring cost had suddenly jumped to R14bn, "of which R10.5bn is required currently".
However, the original business rescue plan indicates that SAA is expected to make trading losses of more than R6bn during the first three years after its rescue. And, crucially, these estimates were put in place before Covid-19, based on specific passenger load and revenue assumptions.
That plan projected that the number of passengers for 2021 was expected to be 270,543, moving up to 2.85-million by 2025, by which time it was hoped that SAA would make R20bn in revenue and earnings of R738m.
Those figures are now in doubt.
The plan contains a few other oddities: for example, a headcount of 1,212 in the 2021 year is expected to increase to 2,892 by 2025.
At the moment, SAA’s headcount is 4,647, which the business rescue practitioners have proposed to slice to 1,000.
So how much more money, realistically speaking, does SAA need? More importantly, where will it get the money?
Dongwana tells the FM that R10.3bn "is enough to address and settle the sins of the past".
He says the R2bn in working capital "is intended to give the new management and equity partner an adequate runway to settle in while the airline is undertaking interim flying".
Aviation expert Guy Leitch says that to become a viable concern, SAA needs a further R30bn to R40bn.
"The key unknown," he says, "is what will the recovery look like for the global airline industry? And you’ve got to ask, to what extent will SAA’s recovery trajectory follow the rest of the industry? My view is that it will lag."
The International Air Transport Association (Iata) now expects the global airline industry’s revenue for 2021 to be down 46% from 2019 levels.
"We can’t cut costs fast enough to catch up with shrunken revenues," says Iata director-general and CEO Alexandre de Juniac.
Leitch says this "throws any further projections out the window", and makes SAA’s business rescue plan "absolutely worthless".
"Honestly, it’s not really a business plan at all — it was an attempt to fulfil a legal requirement for the business rescue process and to satisfy the DPE.
"All the rescue practitioners did was literally increase the revenue and decrease the overheads until they got to a business rescue plan that the DPE was prepared to accept. It doesn’t stand one second’s worth of scrutiny."
The most obviously unbelievable component of it, he says, is that it projects the airline breaking even at a 61% load factor.
"No airline in a competitive market has ever broken even with a 61% load factor … and any airline in the post-Covid recovery period that can break even at 81% would be doing extraordinarily well."
Dongwana says "the issue with SAA has never been about the absence of a business but the management thereof".
He says the plan to bring in a strategic partner "should go a long way in strengthening the management of the airline for it to be sustainable and not require any further support from the fiscus".
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