DISCUSSIONS are being held between SAA’s business rescue practitioners (BRPs) and the Department of Public Enterprises (DPE) to “possibly restructure the airline”.

This is according to a lengthy letter issued by the BRPs in response to recent criticism levelled against them by Public Enterprises Minister Pravin Gordhan. In it they seek to clarify the context of business plan proceedings, to “correct inaccuracies and deal with untrue statements made” and to provide the rationale for decisions they have taken.

The BRPs say it is now their “considered view that there is still a reasonable prospect of rescuing SAA, subject to the receipt of unequivocal commitment thereto and the requisite funding”. They say an announcement in this regard will be made in due course, as well as on an agreed timeline for the consultation on the business rescue plan, and its publication.

This follows discord between the parties evident during a May 15 virtual meeting of the Standing Committee on Public Accounts, when the Minister was angered at the BRPs’ announcement that they were preparing a business plan for the winding down of SAA in the absence of further funding. This followed an earlier Memorandum of Understanding where both parties agreed to co-operate in the development of a business rescue plan that would result in a restructured SAA or ‘NewCo’, and for the DPE to formulate proposals by June 30 that would be included in the plan.

Accounting for the R5.5bn (€286.23m) post-commencement finance

In the letter, the BRPs respond to the Minister’s criticism that they spent almost R10bn (€520.42m), including R5,5bn in post-commencement funding, from December to April. They argue they managed to reduce SAA’s operating costs by R500m (€26m) a month during the five-month period, from R2,5bn (€130 117) to R2bn (€104 000) a month. They say SAA’s previous operating costs amounted to at least R30bn (€1.56bn) per year, according to its 2017 financial statements and draft financial statements for 2018 and 2019.

Use of consultants and excessive fees

The BRPs defend their use of international airline restructuring experts, saying SAA’s lenders insisted they be involved and that Alvarez & Marsal were appointed with their approval. This is not unusual, they say, as SAA previously engaged Seabury Consulting (which now also assists the DPE with its proposals).

They say PwC was engaged to calculate the liquidation dividend if SAA were to be liquidated, provide a financial forecasting analysis and an integrated financial model of a sustainable airline. This was crucial, they say, to assess whether a business rescue plan would yield better returns to creditors than liquidation. The BRPs also defend their legal expenses given the complex legal issues emanating from the business rescue process.

Responding to the Minister’s criticism of R30m (€1.56m) in fees shared between them, the BRPs say the fees were paid to their teams, not to them individually. “Every member of the BRP team and associated consultants maintains a detailed schedule of hours that have been expended on the assignment. All fees are included in all monthly management accounts.”

Consultations and accountability

On the Minister’s assertion surrounding the BRPs’ accountability, they say they regularly consult with and report back to creditors and employee committees; provide lenders with detailed reports accounting for the post-commencement finance; and continuously engage with the DPE through correspondence, the sharing of reports including those submitted to lenders, and by sharing media statements ahead of key announcements.

Tabling the business rescue plan

Responding to Gordhan’s criticism that a business rescue plan has not yet been finalised, the BRPs say they actually developed “a full restructuring plan before COVID-19 in anticipation of a funding commitment, but the plan was not shared with affected parties as the funding aspect was still uncertain”.  The plan was, however, shared with the DPE, they say.

They say various restructuring plans were presented to the shareholder in January. On January 13, the DPE chose a restructuring option that detailed retained routes, the number and type of aircraft to be retained to service those routes, anticipated job losses and the funding required for the plan.  Once the DPE made its choice, the BRPs accelerated cost-cutting by renegotiating leases, suspending loss-making routes and implementing Section 189 consultations around staff retrenchments. However, the funding for the chosen restructuring plan was not announced in the February budget.

During March, the BRPs and the DPE continued to engage on the route network for the restructured SAA in the hope that finality on this issue would facilitate the sourcing of funding. “Unfortunately, the draft business rescue plan for a restructured airline, which was near complete, could not be finalised due the impact of COVID-19, which nullified all the assumptions that were included in the income projections that, which were used to build the sustainable airline model.”

Response to COVID-19

A new post COVID-19 plan was developed to preserve the assets of the airline until SAA could reliably predict its future income. ‘Care and maintenance’ proposals were presented to the DPE, involving the suspension of all non-required supplier contracts and the retrenchment of all employees. The DPE rejected the plan.

“The only option available to the BRPs was to propose a plan that would provide creditors with a better return, through a structured wind-down, than liquidation.”

Meanwhile SAA continues to operate limited repatriation and cargo charters. The BRPs say all aircraft being used are being maintained properly and all scheduled maintenance checks are being carried out.  Some SAA Technical employees have returned to work and only authorised maintenance engineers are releasing aircraft back to service.

Labour issues and salaries

The BRPs clarify that SAA does not have sufficient funds to pay salaries to all its employees, nor to pay certain of its post-business rescue costs.  They say all SAA employees were placed on unpaid leave on May 1 and will receive COVID-19 UIF TERS payments, but staff required to work (e.g. repatriation charters) will be paid.

This effectively makes pointless a ‘leadership compact’ between the DPE and trade unions that agreed to 50% pay cuts in May. SAA has also been granted leave to appeal a Labour Court judgment in the application issued by NUMSA and SACCA seeking to set aside the Section 189 process in the absence of a business rescue plan.