SAA goes into business rescue, to receive R2bn as post-commencement finance from government

Embattled state-owned airline SAA has opted to go into debt rescue. 

Following a widely circulated directive from President Cyril Ramaphosa on Wednesday night to this effect, the Minister of Public Enterprises, Pravin Gordhan issued a statement confirming that the Board of SAA has adopted a resolution to place the company into business rescue. 

"This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner," said Gordhan. 

Last week Gordhan said SAA's financial position had deteriorated in the wake of a week-long strike at the airline and that he would announce plans to "radically restructure" the airline soon. 

His announcement led to a number of businesses, like travel agents and insurance companies opting to no longer do business with the airline due to the known financial risk. 

ALSO READ: Major insurer no longer covering SAA travellers due to 'known financial risk'

"Our desire is that the restructured airline will mark the beginning of a new era in South African aviation and must be able to bring in millions more tourists into SA; help create more jobs in tourism and related sectors of the economy and work with other African airlines to underpin and service the integration of African markets and improve dramatically intra-African trade and travel," said Gordhan in his statement. 

"It is also important that the reliance on government finances be reduced as soon as possible and to minimise disruption to SAA services, customers, staff and other stakeholders."

He goe son to say that business rescue "is a well-defined process that will allow SAA to continue operating in an orderly and safe manner and to keep planes and passengers flying under the direction of a business rescue practitioner."

Gordhan says it is envisaged that the Business rescue process will incorporate: 

1. Existing lenders to SAA providing R2 billion as post-commencement finance (PCF) guaranteed by government and repayable out of future budget appropriations in order for the business rescue process to commence and to enable SAA to continue to operate 

2. Government, though National Treasury, providing an additional R2 billion of PCF in a fiscally neutral manner 

3. The prevention of a disorderly collapse of the airline, with a negative impact on passengers, suppliers and other partners in the aviation sector in SA 

4. The full recovery of capital and interest on existing debt provided to SAA by existing lenders that is the subject of existing government guarantees will not be impacted by business rescue 

5. It will provide an opportunity to critically review the cost structure of the airline, while simultaneously attempting to retain as many jobs as possible. This reality was clearly understood in the recent wage negotiation process between the unions and the company 

6. This approach also provides a structured opportunity to reorganize the state aviation assets in a way in which they are better positioned to be sustainable and attractive to an investment partner.

Gordhan says: "It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructure of the airline."

He goes on: "This set of actions should provide confidence to customers of SAA to continue to use the airline because there will not be any unplanned stoppages of flights or cancellation of flights without proper notice should that be necessary."