On Friday, it was announced that business rescue practitioners have spent over $500m on troubled South African Airways since they were called in to try and save it in December. The majority of the expenditure was for salaries, while the rest went on fuel, lease payments, and operational costs.
SAA is bleeding money
As reported by FlightGlobal, SAA business rescue practitioners have spent $532 million while trying to keep the loss-making airline afloat. In a video link on Friday between practitioner Siviwe Dongwana and the Standing Committee on Public Accounts (SCOPA), Mr. Dongwana said that the money was used from 5th December to the end of April.
Of the expenditure, 60% was used for salaries, 20% on fuel, while other outgoings included lease payments for aircraft and fees for flights to the regional operator, Airlink.
Minister of the Department of Public Enterprises, Pravin Gordhan, told the committee that his department had been given the draft of a business rescue plan for SAA on 5th May. However, after consulting with advisors, it was decided that it is “extremely deficient.”
Mr. Gordhan also pointed out the enormous expense injected into SAA since the 2003-04 financial period. The airline had received $1.68bn in cash funding in addition to more than $1bn in guarantees.
Liquidation is not an option for SAA
The relationship between the Department of Public Enterprises and the business rescue practitioners has been fractious. Fin24 reports Mr. Gordhan as saying that, as a matter of national interest, liquidation is not an option for SAA. He said:
“Winding down is not an option. The purpose of providing R5.5 billion post business rescue commencement funding was to complete the business rescue process, which must end with a cost-effective and streamlined airline.”
However, Siviwe Dongwana told SCOPA that without further funding commitments from the treasury, winding down the airline was the only option open to them. Mr. Gordhan called on the rescue practitioners to provide the government with various options so they can decide what financial support they are prepared to give.
Chairman of SCOPA, Mkhuleko Hlengwa, stated that the relationship between the Department of Public Enterprises and the practitioners was unhealthy. He said:
“There must be a meeting of minds, otherwise the chaos of musical chairs will continue. This is not a money-making scheme. Taxpayers cannot afford to continuously pay for something with no end in sight. The bottom line is either you shape up or ship out. South Africans cannot afford an airline that will bleed it dry.”
Can SAA be allowed to collapse?
State-owned SAA is one of the world’s oldest airlines, having been founded in 1934. Regardless of the current crisis, it has suffered from maladministration and corruption for more than a decade.
The company hasn’t made a profit for eight years and has received around $1.6bn in state bailouts. For all the posturing from government and administrators, the collapse of the airline appears to be imminent.
Simple Flying reported last month that almost 5,000 SAA staff would be laid off as the COVID-19 pandemic compounded the beleaguered airline’s financial difficulties. However, the deadline for the layoffs has been delayed as unions argue over terms.
Simple Flying reached out to SAA for comment, but none had been received at the time of publication.
Is the writing on the wall for SAA, or should the government continue to throw taxpayers money at the airline to keep it flying?