The South African government, warning of a potential “uncontrolled implosion” at its national airline, has ordered South African Airways into a business rescue plan to avoid the risk of complete liquidation.
The announcement will remove SAA from the state’s control and place it into the hands of an independent business rescue practitioner as it struggles with losses of about US$35-million per month. It allows the airline to preserve jobs as it negotiates with its creditors.
The decision will “prevent liquidation applications by any of SAA’s creditors, which would land the airline in an even worse position,” cabinet secretary Cassius Lubisi said in a late-night statement on Wednesday.
The decision is the latest setback for South Africa’s struggling state-owned companies after nearly a decade of corruption and mismanagement under the former president, Jacob Zuma. It also signifies a tough new strategy of halting the massive bailouts that kept SAA and other state enterprises afloat.
For many years, SAA was the biggest airline in Africa. But after heavy losses and rising debts, SAA has been overtaken by its fast-growing rival, Ethiopian Airlines, which now has about 120 aircraft in its fleet, twice as many as the South African airline.
Mr. Zuma compounded the problems by appointing a close personal friend, Dudu Myeni, as the SAA chairwoman in 2012. She blocked reforms and lobbied for enormously expensive airplane deals until she was finally pushed out under Mr. Zuma’s successor, Cyril Ramaphosa. An official inquiry into state corruption has heard testimony that a government contractor gave her about US$22,000 in monthly cash to pass on to Mr. Zuma.
The airline, which carries about seven million passengers annually, has announced a restructuring plan that could require the layoff of nearly one-fifth of its 5,150 employees. But this was not enough to secure a new bailout from the government. The planned layoffs also triggered a one-week strike by unions last month that further damaged the airline’s finances.
Some travel agencies have begun halting their bookings on SAA as the airline seemed to teeter on the brink of collapse, and two insurance companies stopped insuring SAA tickets against the risk of insolvency, which further accelerated the decline in passenger bookings.
Because of its huge debts, SAA is already considered to be technically insolvent. Last week, the airline was able to pay only half of its employees’ wages on time, while delaying the remaining salaries for several days.
Earlier this week, South Africa’s public enterprises department announced that SAA would undergo a “radical restructuring” to keep it alive. But by Wednesday, even that plan had been hastily abandoned.
Mr. Lubisi, director-general in the presidency, said Mr. Ramaphosa had instructed him on Wednesday to tell cabinet members of the “urgent need” to adopt a new plan for the “SAA conundrum.”
This was a result of discussions with potential lenders and other key players as the government sought a solution to the “dire situation” at the airline, he said.
A voluntary but urgent move into a business rescue plan “is the only viable route open to the government to avoid an uncontrolled implosion of the national airline,” Mr. Lubisi said in the statement.
South Africa’s biggest opposition party, the Democratic Alliance, said the business rescue plan was “the only viable option to prevent SAA from placing any further burden on our ailing economy and the taxpayer.”
The move will take the airline out of the hands of the ruling African National Congress, it said. “The business practitioner who is appointed must take robust action to immediately cut costs at SAA without any interference from the ANC.”