Solidarity brings application to place SAA in business rescue

21 November 2019

Solidarity today served court papers on SAA and the Ministers of Finance and Public Enterprises, asking the court to put SAA in business rescue. If Solidarity’s application is successful, it would be the first time that a state enterprise is placed in business rescue. This will mean that the court can appoint a business rescue practitioner with comprehensive powers to rescue the airline.

Solidarity argues that business rescue is essential for the sake of the security of its members at SAA, as well as for the sake of taxpayers in South Africa. Solidarity COO Dirk Hermann explains: “We are profoundly aware of the crisis SAA finds itself in. SAA is heading for liquidation which will have huge consequences for employees, the South African economy and for taxpayers. In all, 11 000 workers will lose their jobs and a debt burden of billions of rands will have to be absorbed by the Treasury if there is no radical intervention. A business rescue application is the only remaining option to limit the damage. Recent events at SAA accelerated the crisis. SAA’s Day Zero is imminent. The current shareholder has lost control over finding a solution for SAA”.

Solidarity is taking this action as part of its campaign against the squandering of tax money, SAA being one of the country’s major offenders in this regard. Connie Mulder, head of the Solidarity Research Institute, says: “According to the 2017 financial statements there was a loss of R5 569 000 000. This means that R15 257 534 was being lost per day. Every hour, we are losing R635 730, and every minute R10 595,51. Since 2017, no new statements have been published and it can be assumed that the situation is only getting worse. Every day that goes by must therefore be regarded as a crisis.”

In this application, Solidarity acts on behalf of its members within the SAA Group, but also on behalf of its members in public enterprises in all sectors in the South African economy and on behalf of every South African who is paying tax. According to the Companies Act, public enterprises may be placed in business rescue and trade unions may bring such an application.

“The crisis in the SAA not only threatens the jobs of SAA employees; it threatens all workers and taxpayers. Solidarity’s members are also ordinary workers who pay a portion of their hard-earned money as taxes. We also act on behalf of the approximately 500 000 members of the Solidarity Movement who faithfully pay their taxes. They cannot allow their tax money to be constantly misused to subsidise struggling, ineffective state enterprises,” Hermann said.

Solidarity said tax money that can be used for services for the poorest of the poor cannot be used to subsidise a struggling airline that is only accessible to a small group of the population who make use of this mode of transport.

Solidarity planned to bring a business rescue application last year. Following negotiations and an agreement reached with former SAA CEO Vuyani Jarana, a decision was taken not to proceed with the application. Solidarity had great confidence in Jarana, and still has. However, he has left and according to Solidarity, the agreement reached could not be implemented. In Jarana’s letter of resignation he expressed his frustration with the shareholder.

Meanwhile, Solidarity also held discussions with the SAA Board, Public Enterprises Minister Pravin Gordhan, as well as with officials of the department. Solidarity is totally committed to finding a type of solution for the SAA. Therefore, we went the extra mile with discussions in the search for solutions.

“We realise that a business rescue application is fundamental and therefore we held discussions repeatedly. Business rescue is no magic wand for the SAA; in fact, it drives the crisis to a head with no guarantee of a solution. However, we know that the current path is past the point of finding solutions. The current trajectory would mean an overall collapse of all operations within SAA. Business rescue gives us the chance to save those parts of the SAA that are still functional and efficient,” stated Hermann.

Solidarity said that the already troubling situation within SAA has deteriorated further and faster with the notice of retrenchments, the cash loss from the strike, and especially the loss of confidence in SAA that changed everything. Unfortunately, there is no longer time for extended processes. A radical intervention by a third party is necessary.

“We also believe that a business rescue application will be in the interest of the current shareholder, the state. The right decision would be if the current shareholder would bring such an application itself. We want to appeal to the current shareholder not to oppose the business rescue application, but rather to work closely with the business rescue practitioner to find a solution to the current crisis,” explained Hermann.

Hermann emphasised that the nature of business rescue can bring about stability in an enterprise. Business rescue is not liquidation. On the contrary, business rescue is an effort to find a solution on the other side of liquidation. The submission and serving of today’s business rescue application stops all possible legal processes of creditors to liquidate the SAA. A business rescue practitioner also has comprehensive power which includes the termination and renegotiation of contracts. Business rescue actually provides temporary security that the liquidation process, which is where the SAA is heading, cannot provide.

According to SAA’s last 2017 financial statements, which have been released, the company has a debt of R33 billion. SAA needs, according to their own presentation to parliament, a further R21 billion to turn the airline around and stay in the air temporarily. The accumulated losses of SAA increased from R16 billion in 2013 to R31 billion in 2019. SAA is hopelessly insolvent. The liabilities of the company exceed the assets by far and the situation deteriorates year after year. Other state debt, which is also growing, and crisis areas such as Eskom, which is a bigger priority, worsen the SAA crisis and only bring total collapse and job losses closer. According to Solidarity, the effect on the 11 000 workers and thousands of related jobs, the community and economy will just be too detrimental to wait for it.

According to Solidarity’s court documents comprising hundreds of pages, SAA is in great financial need, but the company can be rescued from external intervention. Solidarity has included a comprehensive turnaround plan which was compiled by a team of leading aviation experts in South Africa and internationally, in its court documents. The experts who helped with the development of the plan include the international aviation expert Guy Leitch, who made a huge contribution, as well as former CEOs of SAA. Interviews were conducted with different other CEOs of airlines and case studies from a PhD thesis were used.

Hermann concluded: “We do not believe in building castles in the air. We are realistic about the possibilities that accompany business rescue. It is not the perfect solution, but SAA’s circumstances are also not perfect. To wait until SAA turn around perfectly by itself, given the history, is irresponsible and is not grounded in the reality that this enterprise is on its way to total collapse. Business rescue offers an opportunity to make an emergency landing instead of aiming for disaster. SAA will not be able to continue in this current format. It has never been sustainable. Business rescue means that we can limit the damage to all relevant interest groups, we can create security and we can save billions of tax money. The longer we take, the worse the consequences will be.”

Issued by Connie Mulder, Head: Solidarity Research Institute, 21 November 2019