SAA creditors on Tuesday overwhelmingly voted for the rescue of the airline, after what some creditors called a railroading of the process by the Department of Public Enterprises.
An 86% majority carried the vote by proxy at the second online creditors meeting. It followed after 88% of creditors earlier in the day approved amendments to the plan, added after the first creditors meeting on June 25.
Announcing the result, business rescue practitioner Siviwe Dongwana said Government had indicated its full support to funding the plan and had indicated it would deliver written confirmation to this effect by tomorrow (July 15), the deadline stipulated in the plan. He welcomed the approval of the plan as “an important step forward for the airline that provides the much needed certainty towards a restructured SAA”.
DPE acting dg, Kgathatso Tlhakudi - who was the only one who was allowed to address the online meeting before the vote - said Government was in the process of appointing a transaction advisor to conclude its initial engagements with (as yet unnamed) prospective strategic equity partners for SAA. He said it would be “not too long” before Government could announce “the preferred SEPs for the SAA group, and its various business units.”
He also announced that SAA chief commercial officer Philip Saunders, would be the interim ceo of the restructured SAA, with an announcement due within days on an interim board. He said DPE had started the process towards restarting the airline and would make further announcement in this regard soon. He said Government was planning “a responsible ramp up of operations in response to the COVID-19 pandemic trajectory, which is due to peak in South Africa between August and September 2020. The base established will ensure a firm foundation for growth going forward.”
Saunders is highly experienced in the airline business, having been the ceo of Caribbean Airlines and having held chief commercial positions at Travelport, Kuwait Airways, Air Malta, SN Brussels Airlines, British Airways and Star Alliance. DPE claims his last position before joining SAA was at IATA, but this could not be immediately confirmed.
In a statement issued after the meeting, DPE welcomed the outcome of the vote, saying the department’s immediate priorities now were to securing the funding commitments and appointing a new interim SAA board. DPE said interim ceo, Philip Saunders, would work closely with the interim board to appoint an interim management team to implement the fundamental restructuring of SAA. It reiterated Government’s commitment to mobilising the necessary resources to fund the transition, including the voluntary retrenchment packages agreed with trade unions.
Meanwhile, some creditors complained they were stonewalled, as they weren’t given the opportunity to ask questions or make presentations to the meeting before the voting took place. “The BRP wasn’t running this process, DPE was in control and was adamant to force it through. The only group being compromised are concurrent creditors, singled out with the vote stacked against us, ultimately our claims in SAA will be forfeited,” one creditor said.
Another contentious issue surrounding the vote was the fact that the voting interest was weighted heavily towards the banks, whose R16.4bn loans to SAA are secured either way by Government guarantees. According to the plan, the banks shall have the right to call in Government guarantees if it fails to make the first repayments totalling R5.8bn to them (R3.8bn to pre-commencement lenders and R2bn to PCF Bank). Meanwhile, concurrent creditors will receive only 7.5 cents in the rand of their claims. “Concurrent creditors are being forced into making a forced investment of 92.5 cents in the rand into SAA, and this is the only group apart from the shareholder, making such an investment,” a creditor commented.
In the weeks preceding the meeting, DPE pushed hard for creditors and trade unions to accept the plan, which critics say for the most part is nothing more than a schedule of SAA’s debt repayments instead of a plan on how to revive the airline. Cabinet expressed its support to mobilise funding from various sources, including from as yet unnamed potential equity partners; but Treasury told Parliament there is no money for it.
The DPE’s Kgathatso Tlhakudi said the plan had the support of the State as a whole and trade unions. “The project has been reflected in some quarters as a vanity project of DPE or that of National Treasury – this is far from the truth. The re-emergence of SAA is good for the country. The process has been undertaken in a responsible manner to ensure the balance in attaining a financially and commercially sustainable and viable airline, and minimizing the negative social impact of the restructure.”
He said the project was “an example for a responsible business transformation process for the SA public and private sector”. He said the restructuring being proposed was “fundamental” and would create “a solid base for the emergence of a competitive, viable and sustainable national airline”. He added: “The restructure is different to previous attempts at turning around the business. The old way of contracting for labour and services is being departed from; productivity and efficiency will guide the performance system going forward.”
Total funding requirements as proposed by the BRPs include: R2.8bn restart capital; R2.2bn for voluntary severance packages (VSPs); R3bn to honour unflown tickets liability; R600m over three years to refund general concurrent creditors; R1.7bn over three years to aircraft lessors; and R16.4bn over three years to repay secured lenders, including R3.5bn plus R168m in interest to be paid to the Development Bank of SA in 2020/21. This excludes R2, 15bn needed to settle debts for SAA’s subsidiaries Mango, SAA Technical and Air Chefs; three years of expected losses totaling R6.4bn, plus any potential damages claims brought by the lessors and other creditors.
According to the amendments to the plan agreed to today, 1000 SAA employees will be retained under new, market-related terms of employment. Another 1000 employees will be placed on a training lay-off scheme for 12 months. SAA will contribute R4650 towards their pension, UIF and company medical aid and assist them accessing UIF TERS (temporary employee relief scheme). These employees will get preference when a position becomes available in the restructured airline, provided they have the required skills and competence. Around 2700 SAA employees will be offered VSP, which will be topped up by SAA in the event that any package is less than R200 000.
