Bruce Whitfield: SAA crashes and burns. It's the end of the airline.
- President Cyril Ramaphosa has ordered SAA into voluntary business rescue.
- This means that a business practitioner will take over and government will lose all legal rights to intervene.
- It’s a portent of things to come.
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Could Public Enterprises Minister Pravin Gordhan’s “not too big to fail” remarks with respect to SAA have sped up its descent into business rescue?
It was at that point that government effectively announced it would no longer guarantee the airline's future, and it was at that point that insurers Hollard and TIC, owned by Santam, would have withdrawn their insurance and Flight Centre would have made its decision to stop selling the airline's tickets.
News broke late on Wednesday that President Cyril Ramaphosa had ordered SAA to enter into voluntary business rescue. With no publicly released financial statements for two years and no prospect of a turnaround, the president finally pulled rank.
A letter to cabinet, bearing the signature of the cabinet secretary and dated 4/12/2019, stated the situation at the airline had become so dire, that previous plans to save it had been set aside.
The letter reads:
Developments at SAA
His excellency President Cyril Ramaphosa has directed me to inform all members of the executive of the urgent need to change the approach adopted by the Cabinet in regard to addressing the dire situation in which South African Airways (SAA) finds itself.
Cabinet adopted an approach that entailed the restructuring of SAA.
However, after discussion with various key stakeholders, including potential lenders, developments have now necessitated a change of approach to the SAA conundrum.
In this regard, SAA will have to urgently go into voluntary business rescue. This is the only viable route open to the government to avoid uncontrolled implosion of the national airline. The voluntary business rescue approach will also prevent liquidation applications by any of SAA’s creditors, which would land the airline in an even worse position.
We remain seized with the SAA crisis and will keep members of the executive informed at all material times.
Cassius Lubisi (secretary of cabinet)
South Africa is about to experience what it is like, first hand, to be forced to assume the debt of an entity, and lose control of its management. It’s a portent of things to come on a far larger scale across more of government unless it can get a firm grip on the reality of its finances.
This may be a blessing in disguise.
When business rescue practitioners move in, their job is to save the airline and the shareholder, in this case, government, will have no legal right to intervene. Recent history shows the decision to enter business rescue is typically left too late, and companies fail anyway.
SAA has been insolvent for years and kept aloft artificially by a government incapable of making tough decisions on time to give it a chance at survival.
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