THEBE MABANGA
The South African Airways has declared cumulative losses of R15 billion over the past three financial years and is unable to pay salaries in May, its long awaited financials have finally revealed. A hearing of parliament’s Standing Committee on Public Accounts (Scopa) on Friday laid bare the differences between the Department of Public Enterprises and the Business Rescue Practitioners (BRPs) at SAA.
The national carrier conformed that it suffered a restated loss of R5.4 billion in 2017, R5.485 billion in 2018 and R5 billion in 2019.
Public Enterprises Minister Pravin Gordhan rejected the non-payment of May salaries as avoidable, pointing out that at low cost carrier Mango Airlines, staff has agreed to salary cuts of up to 50% when the airline was and remains viable.
Gordhan snapped and suggested this could have been done at SAA midway through the meeting.
Business Rescue Practitioner Siviwe Dongwana informed the committee that he cost of restructuring SAA currently stands at R7.7 billion while the airline has spent R 9.9 billion in the four months between December when it was placed under business rescue and the end of April this year.
The SAA financials not officially published but aired for the first time at Scopa, it was also revealed that impairments at the airline rose from R 26 million to R 568 million in a single financial year.
The virtual hearing was attended by the public enterprises department and led by Gordhan and his deputy Phumulo Masualle, department officials and representatives of the SAA board.
Scopa chairman Mkhuleko Hlengwa set the tone by seeking clarity on the delay around publishing SAA’s finances which have now been submitted to scopa as part of this hearing.
The SAA board cited legalities as well the business rescue process underway, while finally relenting in submitting the financials.
Gordhan says government has seen what he calls a “deficient” plan for the airline’s restructuring and was unwilling, or rather unable, to back with funding while the BRPs argue that they need guaranteed funding in order to produce an adequate plan.
This saw the department and BRPs locked in a vicious cycle that left the committee frustrated.
Gordhan reiterated government’s commitment to either restructuring SAA or relaunching as a new airline, a process guided by the outcome of the Business Rescue process.
He seemed to suggest that the Business Rescue process is one they were reluctantly dragged into by the board, a matter that is bound to raise a debate on the powers of a minister and those of a board in a state owned entities.
Gordhan catalogued the cash injection of R 34 billion and credit guarantees of R 19 billion that SAA has received since 2004.
The first tranche of cash of R 6 billion was advanced in the 2003/2004 financial year was to cover hedging losses suffered by the national carrier, which led to SAA being moved out of Transnet.
Gordhan painted a grim picture facing the global industry worldwide noting that full recovery, and now the new time frame for SAA restructuring, will now take between two and three years due to COVID-19.
He noted that the restart of the airline industry will be slow with airlines still grappling with issues like social distancing in their environment.
One certainty is that airplanes will start with loading capacity as low as 30% in some cases which will make flying expensive.
Dongwana said the R 7.7 billion cost of restructuring comprises of payment of dividend to creditors, retrenchments cost for SAA and subsidiaries, the airline’s recapitalisation and working capital, which seems separate from restructuring cost.
He did not give a breakdown of the figure.
Acting Director General of the department Kgothatso Tlhakudi later told the committee that the figure is a “moving target” which at one point was presented as R 7.1 billion which made it difficult for the department to back confidently.
Of the time that Dongwana and his fellow BRP have been in charge, they have overseen spending of R 9.9 billion, including R 5.5 billion advanced by government and the R3.5 billion loan from Development Bank of Southern Africa (DBSA) advanced in March when the airline needed R2 billion to keep going.
Of the R9.9 billion spent, 20% went to fuel suppliers, underlining jet fuel as a critical cost for any airline.
16% was spent on salaries, 12% went fleet leasing while another 12 % was spent subsidiaries and 12% was paid to Airlink or passengers they carried for SAA while 28% was paid to “other” expenses for which details were not given, which was heavily questioned by MPs.
Dongwana says the practitioners have renegotiated contracts which were “expensive” by suspending retainers and commissions and renegotiating payment terms.
Dongwana says they had been relying on the R 16.4 billion available to SAA over the next three years announced in the February budget which included the R5.5 billon already advanced to SAA.
This option dried up with the declaration of state of National Disaster on the 15th of March and the subsequent lockdown, which ground all operations.
Before the lockdown, the BRPs negotiated with travel partners and insurance companies to enable SAA to keep selling tickets before the lockdown brought that to a halt.
Gordhan said after the BRPs produced a deficient restructuring plan, New York based consultants Alvarez and Marsal were roped in to help deign the new airline. Scopa requested the plan in its inadequate form, a request to which Gordhan reluctantly agreed while emphasising that the plan was a “draft”.
The failure to produce a business rescue plan was also cited by unions as central to their court action opposing the retrenchments proposed by the BRPs.
Asked directly by Scopa if SAA can be rescued without government financial support by using its own resources or alternative financing, Dongwana conceded that this is unlikely while Gordhan, when asked if he is willing the restructuring plan in its current form made it plain that he is unlikely to do so.
The hearing also focused on the multiple extensions that the BRPs have received starting with the initial 25 day deadline stipulated by the Companies Act.
Hlengwa repeated the committees dissatisfaction with multiple deferrals.
Gordhan pointed out that the ministry was equally baffled, as the extensions were granted by the credit committee and employees committee.
The practitioners argued that once funding options were exhausted, they had no option but to move to the next stage of either winding down operations or liquidation as required by law.
Business Rescue Practitioner Les Matuson pointed out that winding down, in which assets are systematically sold over time, is better than liquidation, which is “destructive” “chaotic” and leaves workers with no protection.
Gordhan described the move to wind down operations once funding had been turned down as “petulant”.
Masualle had the primary responsibility to represent SA Express and confirmed that government had run out of funds the keep supporting the second tier routes carrier which was why it has been placed under provisional liquidation, which they cannot oppose unless funds are sourced.
Scopa asked to schedule a separate hearing on SA Express to focus on the Boeing-sized elephant in the room – the South African Airways.
(Compiled by Inside Politics staff)
