Public Enterprises Pravin Gordhan says that government is not prepared to let South African Airways fail in an ‘uncontrolled fashion’ and that business rescue is the optimal route for the embattled airline.
In a column, Gordhan said that the liquidation of SAA would have led to thousands losing their jobs, leaving social, economic and financial damage in its wake.
“Operations would have ceased. Passengers all over the world, already at airports, would have been left stranded. The costs of their repatriation would have been enormous,” he said.
“The same would have happened at domestic and regional airports. Passengers already at the destination of their first leg would not have been able to return to their origins in an orderly manner. It would have cost us dearly in terms of future tourist and business revenue.”
He added that a large part of SAA’s staff of around 10,000 people would have been affected, without the normal protection of the Labour Relations Act. It would also have meant further redundancies in associated aviation-related businesses.
By comparison, Gordhan said that the business rescue process is the best chance of retaining viable parts of SAA and transforming the airline into a stronger company that can attract an equity partner.
“Business rescue will allow the airline to operate in an orderly manner. It keeps SAA’s planes and passengers flying. It also protects as many jobs as possible and the interests of the airline’s lenders,” he said.
“In addition, it is an opportunity to critically review the cost structure of the airline, in line with a highly competitive global aviation industry. This sector is known for its volatile costs due to, among other things, the cost of oil and low profit margins. Any operator in the aviation sector has little room for poor judgment.
“Customers should still have confidence in SAA and its safety record. There will not be any unplanned cancellation of flights.”
Despite the government’s plans to save the airline, SAA will likely still enter into liquidation in the coming months, said Intellidex analyst Peter Attard Montalto.
However, he noted that the additional R4 billion of state and bank money may provide an additional bridge over December.
“The statement is couched in language that a state airline is needed to support tourism – we look through this however as window dressing and an attempt to provide political cover. Overall the clear aim, rightly, is to retain as many sustainable jobs as possible. The statement also highlights that an investment partner is key. ”
“How one sees this then depends on if its R4 billion unnecessarily spent and down the drain or a final R4 billion to get it over the line either politically into business rescue onwards to liquidation or into business rescue onwards into recovery.”