We have reported over the past few weeks on the immense difficulties being experienced by South African Airways. Most recently, one of the largest travel agents in that country ceased selling tickets for the airline and two travel insurance agencies declined to continue covering the airline for insolvency. This followed an eight-day strike by union members, which had a major role in pushing the airline to the brink of collapse.
Late today (Wednesday) it was announced that the organisation has gone into voluntary ‘business rescue’. The legal process involves putting the administration into the hands of a business rescue practitioner who manages the affairs of the distressed company, and as such removes managerial and executive control from the shareholders, in this case the South African government.
The process attempts to restructure the affairs of the organisation to best insure its survival while simultaineously protecting it from claims by creditors. The only other option was to allow the airline to cease operations, which would have caused massive inconvenience to the travelling public, potentially caused the loss of many thousands of jobs and from a public finance perspective, caused the claims of creditors to have become immeadiately valid against the government. It’s a clear admission that the present management itself is not able to rescue the airline, and to some extent distances the government from the inevitable repercussions; there is no doubt that the decision will be strongly opposed by the unions.
Significantly, this is the first instance of a state-owned enterprise going into business rescue since 1994 when a democratically-elected government came to power in South Africa.