You can keep flying SAA thanks to R3.5bn in funding - business rescue practitioners | Fin24
 
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You can keep flying SAA thanks to R3.5bn in funding - business rescue practitioners

Jan 28 2020 16:54
Lameez Omarjee

The Development Bank of Southern Africa has committed R3.5bn to SAA, business rescue practitioners have confirmed.

In a statement issued on Tuesday afternoon, business rescue practitioners Les Matuson and Siviwe Dongwana said stakeholders can continue flying SAA now that required funding has been secured.

"Stakeholders of the airline should now have comfort that the rescue process is on a significantly sounder footing, and that passengers and travel agencies and airline partners may continue to book air travel on SAA with confidence," they said.

Earlier on Tuesday Bloomberg reported that government may have received funding from DBSA, which would be government guaranteed. Treasury, the DBSA and SAA would not comment at the time.

When SAA was placed into business rescue, by order of President Cyril Ramaphosa, in December 2019 – both government and creditors committed to jointly provide R4bn.

Local commercial banks had provided R2bn in post-commencement financing – in addition to existing exposures to SAA. However, by mid-January government still had not been able to keep its end of the bargain.

In recent weeks government has managed to obtain the balance required to meet short term liquidity requirements of the airline until the business rescue plan is published. Fin24 understands that the plan will be finalised in February.

"Discussions held with financial institutions have been fruitful with the Development Bank of Southern Africa offering to provide the next tranche of PCF, for a total amount of R3.5bn, with an immediate draw-down of R2bn.

"Furthermore, funding for the restructuring phase after the plan is adopted is being considered by potential funders," said the business rescue practitioners.

The airline has been facing a liquidity crisis and earlier this month, had to cancel flights in order to save cash.

Following speculation that the airline was going to fold, the Department of Public Enterprises issued a statement on Sunday January 19, 2020 assuring the public of its commitment to saving the airline.

"We are determined to contribute to the Business Rescue process so that we could minimise job losses and give birth to a rejuvenated SAA that all South Africans could be proud of. Collective effort is needed to make SAA as a premier African airline and Star Alliance member," the Department of Public Enterprises (DPE) said at the time.

According to Mashudu Raphetha, president of the National Transport Movement (NTM) union, it is imperative that the R3.5bn obtained from the DBSA be channelled towards the conclusion of SAA's highly anticipated business rescue plan, the optimisation of its network, fleet renewal, the establishing of African hubs, reclaiming "the lost lucrative routes" such as London to Cape Town and Johannesburg to Mumbai, as well as the "immediate restoration of all profitable freighters and insourcing to prevent unnecessary costs".

The union said it realises that government would still have to inject even more funds into SAA to ensure it is "recapitalised for sustainability into the future".

"NTM is appealing to the South African public to once again fly SAA - as it is a well-established brand with a good safety track record and on-time performance - and ignore the doom sayers...," said Raphetha.

The chairperson of the Parliamentary Portfolio Committee on Public Enterprises Khaya Magaxa welcomed the R3.5bn funding from the DBSA for SAA.

"With the new funding, SAA should be able to address issues that created a lot of doubt about its sustainability," said Magaxa.

"The new lifeline that SAA has been given should aid those tasked with bringing stability to the national carrier to continue with their work."
 
The committee intends to invite the business rescue practitioners to brief it on plans and programmes to turn things around at the national carrier.

Pilots

The South African Airways Pilots' Association (SAAPA) commented that it hopes that the vital R3.5bn financial injection will generate the desired return on investment "and give its loyal passengers the comfort to return to purchasing tickets on SAA".
 
SAAPA said it trusts that the business rescue practitioners will now take "the strong decisions needed to save the airline that result in efficiency and accountability".

SAAPA has repeatedly called for the appointment of "a robust, accountable management team at SAA". In SAAPA's view, until now, government has failed to hold management accountable for the downward spiral of the airline and this cannot continue.
 
"The bottom line is that business rescue will only work if it begins with a fundamental change in SAA management," SAAPA said in a statement on Wednesday.

SAAPA has, for a while already, asked for the appointment of a CEO whose previous work experience includes the post of CEO and who has specialised skills and experience in the turnaround of an airline similar in size to SAA. It would also like to see the appointment of a retired or active pilot to the SAA Board.

Furthermore, SAAPA would like a skills audit of all general managers and heads of department, based on international best practices. It would also like to see the restructuring of flight Operations.
 
"The business rescue practitioners must also work closely with an independent aviation expert while any rescue plan is implemented," said SAAPA.

"This is essential because the aviation industry has its own specific challenges."

* Additional reporting by Carin Smith

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