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Passengers board a South African Airways plane
DOWN, NOT OUT

How South African Airways ended up in bankruptcy protection

Yinka Adegoke
By Yinka Adegoke

Africa editor

Every year from 1994  to 2015, South African Airways was recognized as Africa’s Leading Airline by the World Travel Awards. Since the last time it won, Ethiopian Airlines has dominated the awards.

However South African Airways isn’t in trouble because it no longer wins top awards, it’s in trouble because even while it was winning industry kudos, it was racking up unsustainable levels of debt—topping 57 billion rand ($3.9 billion) since 1994. In fact it last made a profit back in 2011.

This week the state-owned South African Airways went into “voluntary business rescue”—a form of bankruptcy protection similar to Chapter 11 in the United States, after South African president Cyril Ramaphosa decided it was the best way forward for the cash-strapped airline to resolve its myriad financial problems while continuing to operate.

Even by the standards of its many years of mounting debt and near-permanent uncertainty, it has been a traumatic period for the airline which came to a head last month after airline staff went on strike over unmet pay demands. The workers action effectively grounded a number of flights and caused bookings to be canceled on others as rumors started to circulate on social media that passengers’ SAA tickets wouldn’t be honored and to avoid the airline.

REUTERS/Siyabonga Sishi
Workers of South African Airways (SAA) hold placards during a strike over wages and job cuts at SAA headquarters in Kempton Park, South Africa, Nov. 15, 2019.

South Africa’s public enterprises minister Pravin Gordhan said this week the airline would undergo a “radical restructuring” as part of the rescue process, which involves the appointment of a rescue practitioner to take full control of the company’s finances. SAA is set to receive a total of 4 billion rand ($274 million) from existing lenders and from the public coffers.

Gordhan said the process was the optimal mechanism to restore confidence in the airline and hopefully reposition it for growth and to attract potential investor partners.

The minister was also keen to stress the government’s move “was not a bailout”. On Thursday, the board appointed veteran business rescue practitioner Les Matuson to take over the airline and run it alongside management. The hope is there will be no disruption in services.

Among the many worrying likely outcomes of the process is the loss of jobs. South African Airways employs more than 5,000 people and the SAA Group of companies is said to employ around 10,000 more. The process is likely to lead to the firing of staff said Marius Pretorius, associate professor in strategy, leadership and turnaround at the University of Pretoria in an interview with The Conversation Africa.

“Employees are unfortunately very vulnerable during the process. Quite often you’ll find that the good employees leave because they can find other jobs. Nevertheless, they are also protected,” says Pretorius. “If the company does go into liquidation they get preference and are the first of the unsecured creditors to be paid from the available money.”

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