South African Airways Bankruptcy: What is next for SAA passengers and African Tourism?

South African Airways is considered one of the most important airline connectors in Africa. Together with Ethiopian Airlines and Egypt Air, the carrier is a member of the Star Alliance Group connecting directly to other major international carriers including United Airlines, the Lufthansa Group or Singapore Airlines.

Headquartered in Airways Park at O.R Tambo International Airport, the airline operates a hub-and-spoke network, linking over 40 local and international destinations across Africa, Asia, Europe, North America, South America, and Oceania from its base at O. R. Tambo International Airport in Johannesburg using a fleet of more than 40 aircraft.

As of today, the airline is in a state of bankruptcy or known as “business rescue” in South Africa.

South Africa Minister of Finance P.J. Gordhan  issued this statement:

On Sunday I announced the government’s intention to introduce a radical restructuring process at South African Airways ( SAA) in order to ensure its financial and operational sustainability and in so doing reduce its ongoing impact on the fiscus.

Over the past two days, the government has taken the necessary steps that pave the way for an orderly and methodical restructuring process at SAA.

In line with our broad strategic vision, I would like to announce the following:

• The Board of SAA has adopted a resolution to place the company into business rescue.
• This decision is supported by the government.
• 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.
• 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 of 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.

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

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.

It is envisaged that the Business rescue process will incorporate, inter alia, the following:

1. Existing lenders to SAA providing R2 billion as post-commencement finance (PCF) guaranteed by the 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, through 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 the 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.

It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructuring of the airline.

For these reasons, the business rescue process will commence as of 5th December 2019.|A business rescue practitioner will be chosen to take charge of the business and perform the function of operating the airline with the assistance of management. The practitioner will also undertake such rationalizations as are necessary.

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.

The Department of Public Enterprise will also meet on an urgent basis with the business rescue practitioner, all the unions concerned and other stakeholders, in order to create a positive set of relationships and processes, which will ensure that there is a collective approach and optimal consensus on the direction of this company.

We thank the South African Public, customers, and suppliers of SAA for their understanding and patience during this difficult time. This initiative demonstrates that the government will undertake the necessary bold steps in order to reposition its assets in such a way that they do not continue to depend on the fiscus and thereby burden taxpayers.

The creation of a sustainable, competitive and efficient airline with a strategic equity partner remains the objective of government through this exercise. The legal documentation is in the course of finalization.

Government extends appreciation to all members of the Board, management and staff for their service.

The SAA Board of Directors issued the following statement: 

South African Airways (SAA) is today in a position to announce that the Board of Directors of SAA has adopted a resolution to place the company into business rescue at the earliest opportunity.

As previously announced, the SAA Board of Directors and the Executive Committee have been in consultations with the shareholder, the Department of Public Enterprises (DPE), in an effort to find a solution to our company’s well-documented financial challenges.

The considered and unanimous conclusion has been to place the company into business rescue in order to create a better return for the company’s creditors and shareholders, than would result from any other available solution.

Furthermore, the company is seeking to minimize the destruction of value across its subsidiaries and provide the best prospects for selected activities within the group to continue operating successfully.

SAA understands that this decision presents many challenges and uncertainties for its staff. The company will engage in targeted communication and support for all employee groups at this difficult time.

SAA will endeavor to operate a new provisional timetable and will publish details shortly. The company greatly appreciates the continued support of both its customers and partners in the travel industry around the world.

The Board of Directors will also announce the appointment of business practitioners in the near future, and provide media updates as and when appropriate.

It is important to point out that services operated by SAA’s subsidiary airline, Mango, will continue as usual and as scheduled.

Todd M. Neuman, Executive VP North America said: Please be advised that, due to current financial conditions, South African Airways’ Board of Directors and our shareholder, the Department of Public Enterprise within the South African Government have announced that South African Airways will be placed under business rescue with immediate effect. The business rescue process in South Africa is very similar to Chapter 11 protection under U.S. bankruptcy laws, which will allow South African Airways to restructure its debt, reduce costs and continue to operate on a regular basis.

Attached are media releases issued by South African Airways’ Corporate Communications Department and the Department of Public Enterprise within the South African Government that provide additional information on the business rescue process.

We recognize that this business rescue process presents many challenges and uncertainties for our valued customers, travel advisors, and business partners.  SAA intends to operate a normal flight schedule under business rescue and any changes will be communicated to you as soon as possible. Please note:  The operations of our sister carrier, Mango Airlines, South African Express, and Airlink are not affected by South African Airways’ business rescue and they will continue to operate as normal.

As one of the oldest airlines in the world and one of Africa’s leading global carriers, South African Airways has been flying for over 85 years and serving the U.S. market for over 50 years.  We remain confident that the business rescue process will enable SAA to emerge as a stronger and financial healthier airline.

Thank you, as always, for your dedicated support during these challenging times.  We look forward to the continued pleasure and privilege of serving you.

 

There was no indication of any changes on the SAA Website.

Cuthbert Ncube, Chairman of the African Tourism Board, a Pretoria based NGO, said:

South African Airways is essential in bringing the world to Africa, and Africa to the world. The mission of the African Tourism Board is to promote and present Africa as one destination.ATB will work with our members and media partners is ready to assist the restructure of African Airways and assist members in any way possible to have a minimum of interruption in providing services to get visitors to our continent.  Therefore we asked our Crisis

Dr. Peter Tarlow, head of the ATB Rapid Response Team by SaferTourism said: “We’re standing by to assist the South African Airways and any  government or airline and of course ATB members and their clients  affected by this emerging situation.”