Finance Minister Tito Mboweni and his team’s proposals to liquidate SAA and start a new airline were defeated at the ANC national executive committee (NEC) meeting and lekgotla last weekend.
Instead, the meetings agreed on a restructuring process – which would require significant funding from government.
The governing party’s decision to restructure the ailing national carrier – instead of going with Mboweni’s proposal to liquidate it and start a new airline – could cost up to R10 billion over a period, City Press has learnt.
The envisaged restructuring, which was meant to create a profitable new airline under the SAA brand, could cost a further R8 billion – over and above the R2 billion government has committed to provide for the business rescue process.
The additional R8 billion would be used to cover expenses related to restructuring, such as severance packages for workers, among other costs.
“The state will need money to finance restructuring. It is not a bail-out. If you are starting a new airline under the SAA brand, then you are going to have to finance it anyway,” said an insider in the government’s economic cluster.
The restructuring option was better in the light of the fact that “immediately” liquidating SAA could possibly cost R50 billion. According to critics this would “blow the fiscal ceiling”.
The ANC top brass instructed Treasury to swiftly make available R2 billion to the embattled airline to keep it flying as part of the ongoing business rescue process.
The scenario would also result in an undesirable credit downgrade for the country.
It was also important to avoid a situation where lenders could call in their credit even to other state-owned entities like Eskom, which was the biggest risk to the economy due to its R450 billion debt burden.
City Press heard that Mboweni yielded at the end of the discussion. “He was defeated, for lack of a better word,” said a person attending the meeting.
The ANC top brass instructed Treasury to swiftly make available R2 billion to the embattled airline to keep it flying as part of the ongoing business rescue process that started last month, according to those who attended the meeting.
The pending provision of the funds to SAA – which recently created alarm that the airline could go belly-up sooner than expected – formed part of a larger R4 billion post-business rescue commencement finance package.
SAA battle lost. Picture: South African Airways/Sonja Grunbauer. Source: SAA Museum Society Archives
The funds are required within the next six weeks, after which the business rescue practitioners, Les Matuson and Siviwe Dongwana, would be expected to present the final costing of the restructuring process.
Last year government committed to help SAA repay its R9.2 billion in government-guaranteed debt over the next three years.
WHAT WOULD RESTRUCTURING LOOK LIKE?
A government insider said the fact that SAA cancelled several flights recently did not mean the airline was in trouble.
It was part of the business rescue process moving towards efficiency, including scrapping expensive routes that had low demand.
The planned new airline under the SAA brand, which would still be a national carrier, could focus on “efficient profitable regional routes with far fewer overseas routes”, said the insider.
The business rescue practitioners were also closely studying what Mango was doing right in order to come up with a suitable model for the new SAA.
Among the other options, government could also look at the viability of continuing with SA Express, which may be integrated into the new airline.
A new role for SAA Technical (Saat) was also an option, which could see the unit aligned with the broader work of Denel and public enterprises.
The Saat option was considered critical in the bid to avoid a jobs bloodbath, said the insider.
“The state also needs some of the skills at SAA.”
On Friday there were fears in Cabinet circles that “the markets could be spooked” as a result of uncertainty over the next step for SAA, forcing Treasury and the public enterprises department to adopt a single line of communication in order to avoid mixed messages.
Mboweni referred all questions to public enterprises, and even cut off a question on SAA during his media briefing at the close of the World Economic Forum in Switzerland on Friday.
Public enterprises spokesperson Sam Mkokeli said: “Events associated with last weekend’s ANC meetings should be dealt with by the ruling party.
“Treasury deals with state finance. SAA is under stewardship of the business rescue practitioners announced last month.”
City Press understands that Mboweni’s initial reluctance to provide the required R2 billion had been born out of concern that the country had other pressing priorities in terms of basic needs for the poor and vulnerable, including health, sanitation and education.
Also, the banks were refusing to do business with SAA because its costs were higher than its revenue, and it would be deemed reckless if any financial institution was to provide the airline with a credit facility.
Mboweni had wanted liquidation and the creation of a new airline, bringing in equity partners like the Industrial Development Corporation, Public Investment Corporation and even Ethiopian Airlines, so that “President Cyril Ramaphosa would not lose political capital and become the president who took SAA to the grave”, said a person who attended the meeting.
Others preferred for the airline to be scrapped, and efforts to be focused on enabling Mango to take over SAA’s activities.
But the majority pushed for SAA to undergo a restructuring process to reduce its liabilities, after which equity partners could be brought on board.
The NEC left the form and content of the restructuring process to the business rescue practitioners to conclude.
A Treasury insider said the liquidation option would have meant that all contracts would have had to be cancelled and management constituted afresh.
“Now the battle is going to be what is the content of the restructuring, and whether people with vested interests in the status quo will be powerful enough to resist a restructuring process that may save the airline.
“If they are powerful enough, we will be back to square one.
ANC secretary-general Ace Magashule
“With vested interests from actors who are there, they would want to restructure it in such a way that their interests are safe. If not, they are going to cause more disruptions,” said the person.
There had long been concerns in the ANC that a few among the country’s elite were milking SAA and being enriched through evergreen contracts.
ANC secretary-general Ace Magashule said on Wednesday that state-owned enterprises (SOEs) “need to be stabilised and restructured in order to be able to effectively contribute towards economic growth and transformation, and the process of rooting out corruption must continue so that state structures and SOEs serve the people”.
Magashule said the NEC “also agreed that strategic partners must be engaged on SOEs”. He said the party also wanted an “investigation of historical contracts impacting negatively on SAA, including the leasing of planes and evergreen contracts”.
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