South African Airways Collapse Imminent As Carrier Prepares To Fire All Staff By End of April

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A few days ago I wrote about the possibility of South African Airways going under after the government cut off future funding but little did I know the lights would go out in just two weeks

According to media reports SAA is in the final phases of terminating the employment of their entire workforce by the at the April which is less than two weeks from today.

Things move rather swiftly nowadays and the recent announcement by the South African Government that no future funds would be forthcoming to the loss making carrier sent shock waves through the company.

Bloomberg reports that SAA is in the process of preparing termination notices and severance packages for all employees of the company as per April 30th.

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-month pay for each year of service and will depend on the successful disposal of assets such as real estate, according to the document. …

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 team of administrators led by Les Matuson and Sizwe 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.

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 situation here seems very clear, the company is burning more money than it can actually generate plus there hasn’t been any profit for the last 9 years. At the same time the carrier is relatively small with a workforce of just 4,600 which is really small for a national airline.

It’s simply not economical to let the carrier continue to operate under these premises. What is dangerous under the proposal of severance packages is that these “1 month per per year of seniority” conditions is reliant on the sale of SAA’s assets.

What happens if these assets can’t be sold and who is supposed to buy them in this current economic climate? There won’t be a long line of interested parties seeking to buy anything of whats on offer. Will the employment payments be prioritized before all other creditors?

Those assets that will be sold probably end up going for a bargain through some backhand deal considering the absolutely rampant corruption in South Africa.

What does this mean for customers IF South African Airways goes under?

Passengers with SAA tickets issued on SAA stock should brace for the worst as in the case of a total grounding and bankruptcy those tickets will lose all value, if someone holds a ticket issued by a Star Alliance or codeshare partner, those are fully refundable.

Members of SAA’s Voyager Frequent Flyer program would be especially affected. Mileage account and status would be invalidated should the airline and SAA Voyager cease to exist. All existing mileage tickets even if fully operated by Star Alliance partners will no longer be accepted. Here are the current redemption options for SAA miles.

In the past the other Star Alliance carriers have always offered a status match when a member airline went bankrupt so status members should keep documentation of their account. Mileage balances do no transfer over though.

Conclusion

This is going to be really bad for those employees of SAA and hopefully they will find a solution for their situation as I believe these severance packages are somewhat of a fantasy to calm the masses for now but eventually everyone will realize that the asset fire sale will likely not bring in the big money.

Aside from the human tragedy it makes sense to finally cut the cord on SAA at this moment in time. There is no light at the end of the tunnel and as long as there are still ongoing operational as well as staff payments this will be a never ending story. This has actually nothing to do with Coronavirus, a company that hasn’t been profitable for a decade and burns up the resources can’t be allowed to continue like this. Eventually the market will decide what kind of replacement for SAA is suitable.

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