South African Airways (SAA) had to be placed in “business rescue” because there was no other viable and financially workable option to secure a credible future for the state-owned airline, President Cyril Ramaphosa said.
SAA has been posting losses since 2011 and is deeply in debt. It received more than R20 billion in government bailouts over the past three years, which achieved little more than keeping it barely afloat.
Ramaphosa last week ordered SAA to seek business rescue as the airline is close to collapse. Business rescue is a form of bankruptcy protection where a specialist adviser takes control of a company to restructure it.
“The financial crisis became so grave the only way to secure survival was to take this extraordinary measure,” Ramaphosa said in his weekly newsletter.
“With the support of lenders, government, management and workers, SAA will continue to operate while the airline undergoes the restructuring needed to make it a viable company.”
SAA was granted a R4 billion lifeline from government and banks to launch the rescue plan, but the cash could only last months, analysts say.
Minister of Public Enterprises Pravin Gordhan wrote in an opinion piece in the Sunday Times the decision to rescue the airline, rather than let it fail, would save many of 10 000 jobs at SAA.
After years of government dithering, the distressed state entity’s crisis was increasingly seen as a test of Ramaphosa’s resolve to carry out badly-needed economic reforms.
Years of corruption and mismanagement put several state owned enterprises in dire straits, including power utility Eskom, whose financial problems see it struggling to keep the lights on.
Ramaphosa said many state-owned firms are deeply in debt, they remain valuable state assets with immense capacity.
“We will not allow any of these strategic entities to fail. Rather, we need to take necessary steps – even drastic ones – to restore them to health,” he said.