South African Airways (SAA) entered a business rescue process on Thursday, with a R4 billion ($272 million) lifeline from government and banks announced by a minister.
State-owned SAA, which has not made a profit since 2011 and depends on government bailouts to stay solvent, said it would try to operate a new provisional flight schedule.
In business rescue, a specialist practitioner takes control of a company with the aim of rehabilitating it to improve its chance of survival, or secure a better return for creditors than from liquidation.
SAA said the process sought to provide the best prospects for “selected activities in the group to continue operating successfully”.
The airline was hit by an employee strike last month forcing it to cancel flights and pushing it to the brink of collapse. Two major travel insurers stopped covering its tickets against the company becoming insolvent.
On Wednesday, a deputy minister, who declined to be identified due to the sensitivity of the matter, told Reuters he received an official letter saying President Cyril Ramaphosa called for a change of approach on SAA and that the airline would enter “voluntary business rescue”.
Pravin Gordhan, minister of public enterprises, said in a statement business rescue was the best way to restructure SAA into a stronger entity. He said the plan was still to attract an equity partner.
Existing lenders would provide SAA R2 billion of loans guaranteed by government and repayable out of future budget appropriations. Government would provide R2 billion in a “fiscally neutral manner”, Gordhan said.
SAA’s government-guaranteed debt would not be affected by the business rescue process, Gordhan said. Analysts expect other creditors to suffer losses.
Hans Klopper of BDO Business Restructuring said the rescue process for SAA could be difficult and it could take months if not years to find a solution to the airline’s problems.
A relatively small amount of SAA assets could be recoverable. The rescue process could further dent confidence in the airline, he said.
“If there aren’t willing patrons prepared to book flights then the bottom falls out of the business,” Klopper said.
“With SAA there is a structure of devastation, but you may have somebody who comes in and offers, say, a cent on the rand. Some creditors could get zero if there is liquidation.”