South African Airways to be placed into “business rescue”

Perth, Australia - November 12, 2016: South African Airways Airbus A340 taxies on Perth airport in an Olympics color scheme, on November 12 2016 in Perth, Australia.

Embattled airline South African Airways (SAA) is to be placed into business rescue to protect it against bankruptcy.

The airline’s board of directors announced the move on Thursday after consultations with the department of public enterprise, a shareholder in the company, and said SAA would be entering into business rescue to help find a solution to its financial challenges.

AFTA announced on Tuesday that South Africa’s national carrier had made the list of suppliers excluded from its Chargeback Scheme, and two major South African travel insurance companies have stopped covering tickets issued by the airline against insolvency.

Analysts have speculated that while the move won’t push the airline into liquidation it will affect ticket sales for the airline that struggled to pay salaries on time this month, Reuters reported.

South African Airways has failed to make a profit since 2011 and suffered a huge financial fall out after two of its largest unions began an eight-day strike on 15 November, forcing the airline to cancel hundreds of flights.

The country’s finance minister, Tito Mboweni, has refused to sign off on guarantees so the airline can get the 2 billion rand ($199.5 million) it needs to stay afloat and according to Reuters, a board member of the airline admitted last week there is a possibility the airline could shut down.

In a statement, SAA said the decision to enter into business rescue would create a better return for the company’s creditors and shareholders than would have been possible from any other available solution.

Business rescue is a type of bankruptcy protection enabled by South Africa’s Companies Act that appoints aa business-rescue practitioner to help the company assess and recognise if it can get back on its feet. It also protects the company against liquidation and legal proceedings.

“SAA understands that this decision presents many challenges and uncertainties for its staff,” the airline said in a statement.

“The company will engage in targeted communication and support for all employee groups at this difficult time.

“SAA will endeavour to operate a new provisional timetable and will publish details shortly. The company greatly appreciates the continued support of both its customers and partners in the travel industry around the world.”

Earlier this week, SAA said the South African government is supporting it in its efforts to restore sales confidence among its customer base.

SAA faced challenges around strikes initiated by the National Union of Metalworkers of South Africa (NUMSA) and South African Airways Cabin Crew Association (SACCA), however, it restored flight services in late November.

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