South African Airways (SAA) cannot be saved, rescued or privatised and must be declared bankrupt, according to Free Market Foundation executive director Leon Louw.
“It is too late, SAA is an empty shell of debt,” he said. “It has no assets worth selling. It is over-manned, its aircraft are old and largely leased and every seat sold is subsidised by government and agent discounts.”
Louw pointed out that the R10-billion bailout by National Treasury would not be enough to save the airline as it would still be technically insolvent by R7 billion.
This, he said, as it did not take into account future budgeted losses. SAA had already been technically insolvent in March 2016 by R12.264 billion and was currently in the red to the tune of over R17 billion when adding the 2017 losses reported in Parliament (R4.825 billion), he added.
According to Louw, the new board and CEO should declare bankruptcy as dictated by the Companies Act.
“Legal opinion is that the new SAA board members are duty bound by the Act to officially inform creditors that SAA meets the laid down insolvency tests and is bankrupt,” he added.
Louw said that this would trigger default clauses in contracts, putting the airline into liquidation or business rescue. However, he emphasised that business rescue would not be feasible as it required a reasonable case for a company to return to profitability.
“Any ‘strategic equity investor’ will be buying historical debt with no prospect of future profit. Hence, business rescue is not an option,” he said.
Louw stated that the solution was for SAA to wind down in a “sensible, planned and open manner” and pointed out that the private sector would pick up the slack.
