SAA employees, unions and creditors 'cautioned' on liquidation of airline

The department of public enterprises, SAA’s shareholder, is urging employees, labour unions and creditors to support the business rescue plan for the stricken airline, saying a “vote against the plan would result in the protracted and costly liquidation” of it.

The department said on Thursday it wanted to “caution” SAA employees, labour unions and creditors that liquidation, which would involve the winding down of the airline and its assets, would “lead to financial hardship for employees and substantial undervaluation of assets”.

“All SAA stakeholders who are in a position to either support or reject a business rescue plan for SAA should realise that business rescue provides a better outcome than liquidation and should be supported for their collective interests,” it said.

But Linden Birns, MD of Plane Talking, a consultancy for the air transport industry, said the department of public enterprises’s statement suggested there are “only two options” for creditors and other stakeholders - namely accept the business rescue plan that has been proposed or the airline gets liquidated.

“That is wrong. The participants in the creditors' meeting last week called for the meeting to be adjourned because they raised a number of issues and concerns with the deficiencies in the current plan. There was no vote on whether to adopt a business rescue plan. What they said was that they had concerns about the plan that was put forward,” said Birns.

He said there had been questions from both creditors and unions about the plausibility of the plan and what its assumptions and projections for the future were based on.

Birns said he didn’t know what the rationale was for releasing the statement, but that the department was saying "it’s our way or the highway”.

He also found announcements last week from the department perplexing. One of these was about it receiving several unsolicited offers for SAA.

“OK, what does that constitute? I can walk into a Ferrari showroom tomorrow and express an interest in a car. It doesn’t mean I’m in a position to buy it. When were these offers received?”

He said the department’s other announcement last week that it was open to strategic equity partners went further, saying the state doesn’t have to be a major shareholder in the new airline.

“Hang on a minute, your entire argument for this business rescue has been predicated on an ideological stance that the state must control the airline. Now you are saying you want to bring in investors. Investors don’t invest for philanthropic reasons. How do you marry those two outlooks if you are going to run a successful airline?”

Birns says if the state has changed its position on ownership of the airline, why was it pursuing a business rescue?

“They could allow SAA to be liquidated and allow people with money to start a new airline.”

Last week Thursday separate proposals by SA Airlink and unions calling for the adjournment of a creditors' meeting to vote on the business rescue plan, were successful.

This means that SAA’s creditors will now only vote on the business rescue plan on July 14. It was due to have been voted on last Thursday.

SA Airlink, which is owed about R500m by SAA, put forward a proposal, which was joined by other creditors, saying it hadn’t received adequate answers to questions posed about the business rescue plan.

In a separate proposal, the National Union of Metalworkers of SA (Numsa), the South African Cabin Crew Association (Sacca) and the SAA Pilots' Association (Saaps), also called for an adjournment.

They said the “the BRPs [business rescue practitioners] could use this period to amend the plan to address the plan’s deficiencies, continue negotiations with stakeholders to satisfy the conditions, including consulting labour and creditors and to thereafter publish an amended plan that meets the requirements” of the Companies Act and has “fewer conditions and provides greater certainty for affected persons”.

Referring to the rescheduling of the creditors’ meeting on Tuesday July 14, the department of public enterprises’s statement said “a vote in favour of the plan by 75% of the voting interests would be required to carry the vote”.

“A vote against the plan would result in the protracted and costly liquidation of the airline. As the shareholder on behalf of government, we are of the view that business rescue is a viable alternative to liquidation – one which supports job preservation and the ability to bring the airline back from the brink to a position where some employees, labour unions and creditors can continue to contribute to the South African economy and its integration into the global economy.”

The department said a liquidation process would mean that creditors “would in all likelihood receive a negligible dividend after all secured and preferred creditors” had been paid and that employees would only receive a maximum of R32,000 per staff member, regardless of years of service. 

“They will only receive payment once the final liquidation and distribution account has been approved, which can take up to 24 months.” 

It said business rescue should result in a “higher return for creditors” and that it was “convinced” the R2.2bn budgeted for voluntary severance packages for SAA employees “is the best available option at a time when government is faced with massive financial demands and fiscal constraints”.

It said these packages could be offered to staff “immediately after a creditors' vote endorses the business rescue plan”. This would include “one week calculated per year of completed service, one month’s notice pay, accumulated leave paid out, a 13th cheque and a top-up of severance packages”.

In a second statement, the department said four unions and staff representatives had approached it indicating they were “ready to sign the voluntary severance packages offered”. It said the National Transport Movement (NTM), South African Transport and Allied Workers' Union (Satawu), Aviation Union of Southern Africa (Ausa), Solidarity and representatives of SAA’s non-unionised managers and ground staff had met department representatives on Wednesday and made a commitment to sign the voluntary severance packages.  ​