Bankruptcy protection does not guarantee SAA survival

A decision to place South African Airways into bankruptcy protection is no guarantee the airline will be able to keep operating – that’s if the experience of other financially distressed companies is anything to go by.

The government announced late Wednesday that the state-owned carrier should be put into so-called business rescue, in effect passing responsibility for a recovery plan to an independent administrator. SAA has lost about 28 billion rand ($1.9 billion) over the past 13 years, leaving it reliant on bailouts to survive — a situation Finance Minister Tito Mboweni says can’t be allowed to continue.

The yet-to-be-appointed lead administrator will have to navigate a minefield of competing interests. The government, labor unions, staff and creditors will all need to agree on a turnaround plan for the business rescue to work, according to Bruce Berry, chief executive officer of the Turnaround Management Association.

“This will be a very complex process and so we probably won’t see a plan for the next two or three months at least,” Berry said by phone from Johannesburg. “The whole point of business rescue is to see the company get a better rate of return than liquidation and so it is not a recipe for the survival of the company.”

SAA will be faced with liabilities of as much as 50 billion rand in the event of liquidation, according to an Aug. 21 report by the carrier on various scenarios that could materialize.

Data published in June by the Companies and Intellectual Property Commission, a unit of the Department of Trade and Industry, show that 3,298 distressed entities entered the business rescue process over the eight years through June 1. Of those, 1,275 businesses remain under administration, 400 were liquidated and 571 — just 17% — were substantially turned around. The balance of cases were either nullified, terminated or set aside by the courts.

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Bankruptcy protection does not guarantee SAA survival