South African Airways Nears Collapse With Plan to Fire All Staff

John Bowker and Loni Prinsloo
·3 min read

(Bloomberg) --

South African Airways plans to lay off its entire workforce after failing to persuade the government to provide more financial aid, a move that threatens to ground the 86-year-old carrier for good.

The state-owned airline has offered severance deals to all 4,700 staff from the end of this month after administrators concluded that a successful turnaround is now unlikely, according to a proposal to eight labor groups seen by Bloomberg News. The basic value of compensation will be one-week pay for each year of service and will depend on the successful disposal of assets such as real estate, according to the document.

No agreements have been concluded, the Department of Public Enterprises said in a statement. “There are discussions with the unions on alternatives to the current South African Airways business model, success of the business rescue process, and the best possible outcome for the airline’s employees,” it said.

SAA has relied on bailouts and state-guaranteed debt agreements for years, having last made a profit in 2011, and was put into a form of bankruptcy protection in December. Public Enterprises Minister Pravin Gordhan said earlier this week that the cost of staving off the Covid-19 pandemic meant no more cash could be extended, while Finance Minister Tito Mboweni said the carrier’s closure could help shore up state finances.

The coronavirus may prove the final nail in the coffin for SAA, which was reducing routes and considering job cuts even before the outbreak forced airlines around the world to ground airplanes. The industry could lose $314 billion in ticket sales this year, according to the International Air Transport Association, as lockdowns and travel bans take an increasingly heavy toll on the global economy.

SAA has been flying cargo planes and chartered flights to countries such as Germany and Brazil in recent weeks, but no commercial passenger services. The plan to offer severance packages to all staff was first reported by the News24 website.

Asset Sales

The team of administrators led by Les Matuson and Siviwe Dongwana will now look to sell assets and raise cash to repay creditors. Two prized nighttime operating slots at London’s Heathrow Airport could be up for grabs, people familiar with the situation said in February.

“Part of the business-rescue process is to consult with creditors, unions and the shareholder as the process unfolds,” the Department of Public Enterprises said.

The National Union of Metalworkers of South Africa and the South African Cabin Crew Association rejected the deal in the absence of a business-rescue plan, they said in a joint statement on Sunday. The airline can be saved even though the unions are aware it cannot “survive in its current form.”

SAA is among several state-owned companies to have become technically insolvent without financial assistance from the South African government, following years of mismanagement and corruption scandals -- particularly under the presidency of Jacob Zuma, which ended in 2018.

The airline has had at least nine chief executive officers in the past decade, hampering attempts at a turnaround, while responsibility for the carrier was passed from the Department of Public Enterprises to the National Treasury and back again.

(Corrects first name spelling in paragraph under ‘Asset Sales’)

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