The time to liquidate SAA was yesterday

The viability of rescuing SAA is less than slim, and if there was ever a time to abandon this hopeless case, it is under the highly depressed economic conditions following the COVID-19 pandemic.

21/09/2020 14:13:44

The time to liquidate SAA was yesterday


Following last week’s SAA creditors meeting and reports of the dire financial situation that the airline finds itself in, the Organisation Undoing Tax Abuse (OUTA) believes that it borders on a hopeless situation to try and keep the airline afloat. Government must realise that their actions are merely a case of kicking the can down the road, and that the costs of this adds an unnecessary burden to taxpayers at a time that the country can least afford it. 

“It is clear to us that the state is finding it difficult to find private partners to take up the majority shareholding. OUTA believes the current bail-out options will become a bigger problem for the taxpayer unless the airline liquidated and a new international carrier is licensed, with majority private sector ownership and with the state taking up not more than a 25% stake,” says Julius Kleynhans, OUTA’s Executive Manager on Public Governance.  

A new start-up international carrier would be relatively lower in cost, with leased aircraft to take up 4 to 5 strategic intercontinental routes and possibly a few regional routes. OUTA believes government’s role should be an enabling one that stimulates competitiveness in the local market and possibly assists with partial subsidisation of some routes to stimulate tourism and business to remote areas.

Current finance requirements of over R10bn is required to cover debt and operations costs aimed at merely keeping SAA limping along.  We believe a humane severance package for staff and debt settlement arrangements with current creditors should rather be sought and government should step away and liquidate SAA as soon as possible. 

The business rescue plan requires R24.9 billion to repay debt and R2 billion to restart SAA with a 1 000-employee workforce. Approximately R16.4 billion is to be repaid over three years (mentioned in the 2020 Annual Budget), and government is trying to mobilise a further R10.5 billion to implement the R26.9 billion requirement of the business rescue plan. “We believe these figures may be insufficient to resuscitate the airline,” Kleynhans says.

Apart from the R26.9 billion, a further R2.15 billion is required for SAA’s subsidiaries (Mango, SAA Technical and Air Chefs) and a further R6.4 billion to cover projected losses for the first three years of the restart of the new SAA. “The funding sources of these amounts are uncertain, and we are concerned that government will start throwing tax money at the problem,” Kleynhans added.

OUTA has written to the Minister of Public Enterprises, Pravin Gordhan, to seek further clarification of the underlying assumptions of SAA’s restart business plan to determine the probability of SAA’s future sustainability and the extent to which SAA’s losses would have to rely on taxpayers funding. However, in the interest of time and following our own investigations and evaluations of the situation, we cannot see how this issue should continue to be drawn out in the manner conducted to date. Every day the state hangs on and SAA remains in limbo, millions of Rands are lost to the South African economy. 

OUTA believes this is now the best time to terminate SAA’s operations to reduce any downstream effect on the taxpayer and to stimulate the industry going forward.  As air transport demand is expected to remain low for the next few months, other airlines would be able to accommodate demand in a post-COVID-19 environment, and we believe the flying public’s needs will be met through a highly competitive environment that is free from the state’s interference.

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