SAA’s business restructure practitioners (BRPs) are wrapping up the last details and hope to see the airline exit the business rescue process by the end of March.
This was confirmed in a statement distributed by the BRPs, which included a breakdown of the funding that the airline has received so far and confirmation of how the money was being spent. While the funding breakdown does answer some of the many questions swirling around SAA, its BRPs and the government concerning the conflicting reports of how the airline’s funding will be utilised (which airline experts have said “does not add up”), many questions remain unanswered. Travel News sums up SAA’s breakdown of the funding process below:
According to the SAA statement, the business rescue plan gave rise to a funding commitment of R10,3bn, which was apart from the R16,4bn payable to SAA’s lenders. This was appropriated in the February Budget Speech. The airline advised that the R10,3bn was to be allocated as follows:
- R2,2bn on voluntary separation and severance packages
- R800m on post-commencement creditor payments
- R3bn in unflown ticket liability
- R2bn for restart working capital
- R600m dividend to concurrent creditors – to be paid in three instalments from August 21
- R1,7bn settlement with lessors – to be paid in three instalments from August 21.
The SAA notice then goes on to state that in its October 2020 medium-term budget policy statement, the DPE made a submission for R10,5bn (and not R10,3bn as requested) for the implementation of the plan. The statement explains that the government outlined how the R10,5bn was to be spent with an allocation of funds that differed from the approved business rescue plan. According to the SAA statement the government’s requested breakdown of the R10,5bn was as follows:
- R2,8bn voluntary separation packages and severance packages
- R800m post-commencement creditors
- R2,2bn unflown ticket liability
- R2bn restart working capital
- R2,7bn recapitalisation of subsidiaries (a controversial item).
“We draw your attention to the funding for the recapitalisation of subsidiaries of R2,7bn, which does not form part of the outcome of the business rescue process or the plan,” say the BRPs in the statement.
“It must be noted that the funding commitment of R10,5bn as submitted by the DPE to National Treasury, did not cater for the full business rescue commitments due to some of the amounts being needed to address commitments in the future. The said commitments encompass the dividends to concurrent creditors, settlements with lessors and a portion of the unflown ticket liability,” it continued.
The notice then broke down the funding allocation that SAA’s BRPs had received:
- The first batch of funding of R1,5bn was made available to SAA in December with stipulations that the funds could only be used to pay two months of unpaid salaries; post-commencement creditors; working capital for SAA and settlement of amounts owed to subsidiaries. “The BRPs were unable to utilise these funds as the conditions provided were non-compliant with the provisions of the Companies Act 71 or 2008 in relation to the prioritisation of payments, which is generally referred to in the business rescue as the payment waterfall,” says the SAA statement. This confirms rumours from earlier in the year that the BRPs and government were locked in a disagreement over how the initial funding was to be used.
- The statement goes on to say that new conditions, which superseded the original conditions, were then provided along with further funding in January. These stipulated that the funds had to be used to pay three months of salaries as part of the settlement of unpaid salaries and ring-fencing the remainder; the post-commencement creditors; working capital portion for SAA and voluntary severance packages (VSPs) for non-management staff only.
- Further funding of R5bn was made available in February for the following payments – VSPs for non-management staff and VSPs for pilots and management.
SAA confirmed that it had received R7,8bn of the R10,5bn to date and says it is engaging with the DPE on the utilisation of the balance of the funds, which “need to be consistent with the proposals as per the plan”.
It is noteworthy that no funds have been received for the recapitalisation of the subsidiaries in the above tranches. The BRPs say they were advised by the DPE that the balance of funds would be made available for the subsidiaries once certain government processes had been resolved. There is no detail on what those processes are.
How have these funds been utilised?
The SAA notification confirms that the BRPs have used the funds that they received in the following manner:
- R360,7m has been paid to 2 888 employees (85% of SAA’s workforce) for three months’ settlement of unpaid salaries.
- R1,55bn has been paid to 3 140 employees for VSPs. Further amounts will be paid when remaining employees owed VSPs get processed to exit SAA.
- SAA is engaging with post-commencement creditors to agree on the most recent statements owed and hopes to have finalised these reconciliations and the payment process by the end of March. To date, R400m has been paid to post-commencement creditors.
- On unflown ticket liability, the statement says: “This amount is earmarked for flying passengers who have flights that are still to happen or that were issued travel vouchers in substitution of the tickets issued thereto which the airline could not previously honour. The travel vouchers are valid until February 2023 so as to cater for the current travelling uncertainties, especially for international travel.” The notification does not refer to or answer any questions relating to the long-awaited resolution of cash refunds.
- The notification adds that funds are currently being used for current costs of care and maintenance and that the rest of the funds will finance the restart of SAA’s operations, post business rescue.