Pravin Gordhan on SAA: ‘I can’t tell you if I am optimistic or not’

Posted on 6 May 2020

The Minister of Public Enterprises, Pravin Gordhan, held a live briefing on the latest developments in State-owned companies with a focus on SAA and the aviation industry in general on Wednesday, 6 May.

Minister Gordhan discussed the business rescue process of SAA. ‘Major airlines have been grounded temporarily or in their entirety. The airline industry is not going to recover or bounce back, it is going to take a lot more for that industry to recover.’

While the Department and many others have pondered why a national airline is needed, Minister Gordhan has said it is a necessity for repatriations and for when those in Wuhan needed to brought home.

‘Repatriations will continue into this week, to the East and to the West for South Africans that need to be fetched.’ Gordhan explained that in terms of the issue of affordability, the state is making arrangements in order to get them back to the country.

In speaking of the future of air travel Gordhan said: ‘Virtually total grounding of major airlines has occurred. The spread of infection by air travel is a risk most countries are afraid of. Many borders are either totally or significantly closed. Traffic between major countries have been closed.

‘It will take a very long time before the industry recovers. The view is that domestic will start off on a slow basis. Regional will follow after that.’

He then asked the question on many minds: ‘How do you achieve social distancing in the airline industry?’

Keep passengers 1.5m to 2m apart will place a major financial strain on passengers and the aviation industry.

‘For every 100 seats on an aircraft only 30 passengers would be seated, because you have to keep distance, wear a mask etc. This will mean that the cost of travel will be phenomenally higher, which will impact the profitability of airlines as well.’

‘In many cases, it is predicted that anywhere between 18 and 36 months is the time frame where international travel would resume. Slightly less for domestic travel in some countries, but it will not resume in the way in which we have once seen it before. IATA on aviation WHO on health side have made calculations and various models in this regard.’

WHAT IS ESSENTIAL IN TERMS OF SAA’s BUSINESS RESCUE PROCESS

– Attempt to look at how ‘rescuable’ the airline is

– Business Rescue practitioners are in charge of SAA, they are the ‘bosses’ currently, they are restructuring the business but the board is still present

‘If SAA is rescuable, a new airline needs to emerge, which is viable and competitive and restructured as a result of business rescue,’ said Gordhan.

The Minister explained that in December and shortly after that, R5.5 billion was made available to SAA from two different sources, for ‘post-commencement finance’.

The Minister explained that the while R5.5 million has been made available over the last 5 months, ‘There are matters of accountability being investigated’.

In the Department’s view, ‘the winding down process that the business rescue practitioners are on, at the moment, continues as they proposed, it will not serve the original objectives set for the business rescue process’.

According to Gordhan, the business rescue practitioners announced that all repatriation flights will end on 8 May.

Gordhan then explained that the Department have engaged the practitioners on various issues:

1. Access to information: An American aviation consultancy was brought in, on recommendation of lenders, to be the aviation advisors and were paid R35 million. ‘The product of their work is still yet to be seen. We want full access to this information to evaluate whether we had value for money.’

2. A call for all business rescue practitioners and their consulting entities to reduce their fees anything up to 40%, ‘So that they can also contribute, like the staff have been contributing, to a proper outcome of this process.  We haven’t heard from them in this regard, only from one consultancy on a reduction of fees. It is the trade unions that have come to the party with magnanimous gestures on their part.’

3. The producing of management accounts which to date have not been done. ‘In the next 48 hours we will be meeting with them to see how much money can be found to give as much continuity as possible beyond the 8th of May. The Department also wants to indicate that there should be no fire sale of important assets of SAA, nor should there be any movement toward liquidation when in fact there are many alternatives that can be pursued.’

LEGAL ISSUES

Minister Gordhan explained the legal issues that the Department has been faced with: ‘When exactly is a proper and fully fledged business rescue plan going to be presented? At best what we have is an outline.’

He explained that the ‘outline’ is heavily based on history and very little focus has been placed on a solution. He explained that the Department wants to engage in constructive communication with the practitioners ‘about alternate routes to a constructive outcome of the business rescue process. We need to understand what the shape of a new airline be.

‘As a department we have invested a fair amount of energy and time and the retention of experts to give us a design of a potential future airline which will be completed shortly.

‘We want it to be clear, that the old SAA as it exists, will not exist into the future. Partly because it was not competitive and viable, but also because of the whole environment both in aviation and the economy have changed significantly.’

‘Nobody can quite anticipate what air travel is going to be like, even two months down the line.’

In conclusion, Minister Gordhan said: ‘To sum up on SAA, we have an institution that is still in business rescue. It has the potential to be restructured into something new, which is what government wants. In that new arrangement there could be strategic equity partners, which will be evaluated by a team of experts. Fourthly, we need to find some quick answers in terms of how do we extend the work that SAA is doing under the current conditions, beyond May. Lastly, we want a constructive resolution to the transition from the old to the new and that will be the subject of further discussion as we go forward.

‘I can’t tell you if I am optimistic or not, but every effort will be made to ensure we move in the right direction.’

Image: Getaway Gallery

 






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