The recent statement of South African President Ramaphosa that the debt ridden South African Airlines (SSA) should seek “ business rescue” is loaded as the airline is in the verge of a collapse. The loses mounted since 2011 and the bailout packages were lavishly given to keep the airline artificially alive. The airline had received more than 20 billion rand (US$1.4 billion) in government bailouts over the past three years.
What does Ramaphosa mean by business rescue? Business rescue is a form of bankruptcy protection where a specialist adviser takes control of a company to restructure it. This is what he did for power utility Eskom, which is also struggling with its restructuring plans, after several bailouts.
According to President, the financial crisis of the airline had become so grave that the only way to secure its survival was to take this extraordinary measure. He made it clear that with the support of lenders, government, management and workers, SAA will continue to operate while the airline would undergo the restructuring needed to make it a viable company. For this, SAA has been granted a 4 billion rand (US$272 million) lifeline from the government and banks to launch the rescue plan, but that cash could only last for months. Some of the senior ministers have come out openly that the rescue operations are solely aimed at saving 10,000 jobs at SAA, hinting that it was an exercise in futility.
What that concerns the Ramphosa administration is that though many of the state enterprises are in deep debt and no immediate scope for revival, they continue to be valuable assets to the state and support a large number of employments. That way, the present South African administration is in an unenviable situation ridden by legacy corruption problems and sandwiched between belligerent unions and an industry asking more reforms including labor reforms. Indeed, Ramaphosa is in a catch -22 situation. Will he ever get bailed out from the patchy trajectory?
