'You would have to pay people to take SAA', says Gordhan but tells parliament it can be rescued

National carrier failed to submit financials to save itself from liquidation: DDG

19 February 2020 - 17:09 By Andisiwe Makinana
SAA can be saved, public enterprises minister Pravin Gordhan told parliament on Wednesday. File photo.
SAA can be saved, public enterprises minister Pravin Gordhan told parliament on Wednesday. File photo.
Image: Siphiwe Sibeko/Reuters

SAA can be rescued.

This is according to public enterprises minister Pravin Gordhan and the business rescue practitioners who were appointed to rescue the ailing national airline.

But Gordhan and his team left MPs with more questions than answers on the state of the airline - including the basis of their assertion that it could still be rescued.

SAA was placed under voluntary business rescue in December, before receiving R3.5bn in emergency funding from the Development Bank of SA in January.

Gordhan excused the business rescue practitioners right from the start of the joint meeting of parliament's standing committee on public accounts (Scopa) and the portfolio committee on public enterprises on Wednesday, saying they were in the process of developing the business rescue plan and that it would be difficult for them to answer MPs' questions about their work.

A presentation by the department's deputy director-general (DDG) Melanchton Makobe to the committee spelt out the grim reasons why SAA has failed for two financial years to table its annual financial statements and annual reports.

“If the annual financial statements and the annual report can be tabled, it will effectively be tabled on a liquidation basis, effectively placing SAA into liquidation,” said Makobe.

“We note that section 65.1 of the Public Finance Management Act (PFMA) provides that the annual financial statements and annual report must be tabled within one month after the board has received the audit report. We know that we are not in compliance with that section.”

Makobe angered MPs when he sought to justify the non-compliance by referring to a section of the PFMA (section 65.2) which provides for a cabinet minister to submit a written explanation to parliament setting out the reasons for the failure to comply.

“So there is a provision of the law that enables us to do that, and that is why the financials of SAA have not been tabled - because effectively if they are tabled, we are actually putting it into liquidation,” he said.

Gordhan said this was the reality of SAA, a failing business. He said tabling the financials would result in liquidation, which in turn would mean that "everything ceases".

"Planes are on the ground. Staff are told to go home, you have no pay. Creditors are going to line up and depending on what's available as assets in the particular entity, you will get a bit of whatever is actually left," he said.

“I think the board endeavoured to avoid that scenario and that's where business rescue comes in at the end of the day.”

Gordhan said the matter was not about compliance or non-compliance, but rather the reality of managing failing SOEs and how to deal with them in such a way that the government can save as much as possible, securing as many jobs as it can and whatever value remains in those assets.

“Otherwise we could have thrown up our arms and said 'liquidate', and that's the end of the story," he said.

Gordhan promised to get legal opinion on the matter and also investigate if there was a way his department could give MPs some financial information to indicate the true status of what was going on, as opposed to financial accounts.

He had earlier told MPs that as the process of diagnosing the problem continues, the business rescue practitioners had reached a view of whether the business is "rescuable" or not.

“In this instance, the practitioners, after doing their assessment, came to a view that this is rescuable. But it is rescuable not as it exists at the moment, because those losses that we see are as a consequence of poor contracting, overpricing, corruption over a period of time and mismanagement of SAA, [and] choices about aircraft ... Most of the aircraft at SAA are leased,” he said.

Responding to MPs who asked about getting an equity partner for SAA or selling the company, Gordhan said: “Nobody is going to offer you anything for SAA right now. Some of you talked about selling SAA - you can sell it for R1. You would probably have to pay people to take SAA as it stands right now. That's the honest truth.”

Scopa chairperson Mkhuleko Hlengwa registered MPs' unhappiness over the prolonged non-submission of annual financial statements and the lack of detailed information from SAA and the department. He said the application of any provision needs to be rational, adding that the specific provision was an exception and not the norm.

The UDM's Nqabayomzi Kwankwa suggested that parliament may need to tighten the provision in law, which he said was open-ended and could be abused.