In any nation even with the slightest of socialist values, the public sector plays an important role. However, fulfilling these social obligations, public sector companies have been often financially worsened. The recent case of financially unsound South African Airways (SAA) proves that. This airline has been running for years without profit and is now about to collapse. However, the South African Government seems to have made the final decision to place it under bankruptcy protection and revive the airlines.
The office of President Cyril Ramaphosa is yet to make any official announcement regarding this. However, a letter from Cassius Lubisi, the secretary to the cabinet to all ministers and deputy ministers, states that the decision had been taken to revive the said Airline. The Minister of Public Enterprises, Pravin Gordhan, has confirmed that the Board of SAA is likely to pass a resolution to that effect very soon.
Gordhan said, “This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner.”
SAA has not made a single penny as profit since 2011 and it has received a total of 3.9 billion USD as bailouts since 1994. There has been an on-going pay strike by the staff of this airline that led to the cancellation of numerous flights and harassment of the consumers. This has also impacted the business relationship of the airline with travel agents and insurance companies.
As per the local South African Companies Act, business houses can file for business rescue if they are undergoing financial distress. If a business rescue is granted, the company will have its own business-rescue practitioner, who will assess the company’s financial status and restructure the company’s assets to make it profitable.
Putting SAA into business rescue has been on the demand list of the labor union. It would be the best option to safeguard taxpayers’ and customers’ interest. Recently, there has been a huge decline in the booking of tickets on SAA due to the uncertainty of flights.
The government is hopeful that the rescue plan will enable the airline to become profitable again. Minister Gordhan said, “Our desire is that the restructured airline will mark the beginning of a new era in South African aviation and must be able to bring in millions of more tourists into SA; help create more jobs in tourism and related sectors of the economy and work with other African airlines to underpin and service the integration of African markets and improve dramatically intra-African trade and travel.” He also added that SAA’s reliance on Government finance should be minimized as soon as possible and the airline should become financially viable.