State-owned South African Airways (SAA) is seeking another government bailout to survive. This time it will cost the government at least $580m in funds, according to the practitioner’s proposed business plan revealed on Wednesday.
With the government’s bailout, the administrators hope SAA can overcome its years of loss as well as the COVID-19 situation.
Previously, the practitioners were given a strict deadline of 25 days to come up with a rescue plan for SAA. Since working on saving the airline since December 2019, the practitioners proved to be unsatisfactory. They submitted a draft plan in May that was not up to standards.
The plan proposed was also based on the fact that SAA would be allowed to sustain almost all of its African route networks. For domestic routes, three out of four will remain along with an estimated half intercontinental destinations.
The bailout will help SAA in different aspects of its operations. The rescue practitioners provided a detailed breakdown of how SAA can utilize the funds in their turnaround plan
Specifically, over $162m will be used as a working capital injection. At least $127m is set aside for layoffs, while more than $173m will be dedicated to unused tickets. Lessors will receive over $98m, and the remaining almost $35m will go to creditors.
Additionally, the proposed $580m figure does not include the government’s provisional funds of $950m. That amount is for SAA’s debt and debt-service costs. Plus, the remaining amount will be as a means of support for SAA while it undergoes restructuring.
The Public Enterprise Ministry will first evaluate the plan. The Ministry wants to see SAA as a “competitive, viable and sustainable national airline” before going ahead with the business plan.
The tables have turned, and now the rescue practitioners are setting a deadline. The South African government has been given a little less than a month to show its support for the turnaround plan and commitment to funding the $580m. An answer is due by July 15.
However, SAA employees’ job security has always been on the line considering the way the airline is plummeting financially. Cash-strapped SAA has previously even considered laying off 4,700 employees.
Fortunately, unions have halted the layoffs, for now, asking the court to view the new business plan first. With the business plan revealed, it might only be a matter of time before the court is in session again, and employees face dismissal.
Also given travel restrictions in place globally, SAA would only require a fifth of its staff to operate flights till the end of August. SAA would need only some 1,000 staff and six planes, compared with roughly 5,000 staff and 44 planes when it entered administration.
Numbers might increase to 2,900 staff and 26 planes in the future when travel restrictions ease. However, the figures still show a dramatic reduction in staff required. Only time will tell if SAA employees will face dismissal, and receive a fair exit at that.
It is clear the South African government wants SAA to continue as a state-owned airline, exemplified by the amount of money supplied. Back in May, $212m was set aside for the airline even though the government already decided to stop providing more bailouts.
SAA is hanging by a thread. The airline has reported losses for almost a decade. Even with the amount of money pumped into the carrier, the situation seems to deteriorate.
Now, with another enormous over half a billion ask, will the funding show growth. The first step is to ensure the government has not used up its lifelines just yet, and throw SAA, what should be, its final one.
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