SAA faces legal bid to force court-appointed rescue

South African trade union Solidarity is making a legal bid to have embattled flag carrier South African Airways placed under formal business rescue.

It says it served court papers on the matter on 21 November, arguing that the step is “essential” to protect personnel at the state-owned airline as well as the country’s taxpayers.

SAA is “heading for liquidation”, claims Solidarity chief operating officer Dirk Hermann, and this would have “huge consequences” for employees and the country’s economy, with the possibility of 11,000 job losses and the national treasury’s having to absorb the carrier’s debts.

“A business rescue application is the only remaining option to limit the damage,” says Hermann. “The current shareholder has lost control over finding a solution for SAA.”

SAA has long struggled to contain losses. The airline’s problems have deepened over the last month, after a technical audit forced the temporary grounding of aircraft, followed by strike action which has disrupted its flight schedule.

The airline disclosed earlier in November that it was looking at shedding 20% of the workforce.

Placing the state carrier under formal business rescue would grant court-appointed specialists powers to take decisions which might save the airline.

But Hermann warns that the carrier is approaching “day zero”.

“Business rescue is no magic wand,” he says. “It drives the crisis to a head with no guarantee of a solution.

“However, we know that the current path is past the point of finding solutions. The current trajectory would mean an overall collapse of all operations within SAA.”

Placement under business rescue would, he says, provide an opportunity to save the efficient parts of the company.

Solidarity states that it is legally entitled to make the application for business rescue, claiming that – if the court accepts it – the airline would be the first state enterprise to undergo the procedure.

“We are realistic about the possibilities that accompany business rescue,” says Hermann. “It is not the perfect solution, but SAA’s circumstances are also not perfect.”

Public enterprises minister Pravin Gordhan warned striking unions SACCA and NUMSA on 19 November that the government was “not in a position” to make any further funds available to the struggling airline, warning that repeated bailout had become a “moral hazard”.

South Africa’s government has handed more than R20.5 billion ($1.4 billion) in financial support to the airline over the past three years, says Gordhan: “Even if there were funds available, there is no legal mechanism to provide funding to SAA in the current year.”