An Open Letter To all SAA Creditors and Lenders: Reject the SAA Business Rescue Plan

12 July 2020

The business plan as proposed by Les Matuson and Siviwe Dongwana, the Business Rescue Practitioners (BRPs) appointed to deal with the South African Airways (SAA) business rescue raises a number of moral, ethical and financial issues in general, but particularly with regard the situation faced by SAA in view of the challenges faced by the country as a result of the demands made by Covid-19.

It is with this in mind the we present this open letter to you to urge you to reject the Business Rescue Plan that has been proposed by the BRPs appointed to deal with the SAA business rescue.

It is common cause that SAA has been mismanaged for a decade or more. The entity has been insolvent and bankrupt for all practical purposes for at least the past five years and has only achieved a “Going Concern” status year after year, on the back of R36.9 billion in taxpayer cash bailouts together with government guarantees of R19.1 billion.

Despite this unsupportable state of affairs, which all creditors and lenders have been acutely aware, many have continued to extend credit facilities to SAA without any security. This was presumably done on the basis of an assurance of receipt of payment, courtesy of unending taxpayer bailouts and government guarantees.

Creditors and lenders assumed the risk of not being paid by SAA for goods and services provided in the full knowledge that SAA was trading at massive losses year after year for the past nine years.

These losses have totalled some R32.0 billion. Certain creditors and lenders are reported to have been accorded special status and paid hugely inflated prices for products provided to SAA, enabling them to profiteer off the largesse of the SA taxpayer.

In the full knowledge that SAA was bankrupt, parties have knowingly elected to continue trading with SAA on an unsecured basis. In terms of the latest proposed SAA Business Rescue plan, these parties face a prospect of being paid a dividend of 7.5 cents in the Rand thanks to yet another taxpayer bailout.

The question creditors and lenders should be addressing is whether it is proper – morally, ethically and in terms understood risk – to divert funds desperately needed to fight the Corona virus, rampant hunger and associated job losses to compensate for the folly of recklessly doing business a patently bankrupt company.

Our view is, irrespective of the quantum, any such dividend or repayment is unsupportable. Accordingly, we urge you to vote against the proposed business rescue plan on the 14th of July 2020.

Many creditors/lenders have shrewdly, without regard to the effect on the fiscus and taxpayers, ensured the provision of security from government prior to advancing any such loans/credit. It is clear that this was done this in the full knowledge that SAA was bankrupt and that there was little or no chance that SAA would be able to service the credit/loans.

To compound matters it is abundantly evident that that many creditors/lenders relied on being repaid (capital and significant interest), notwithstanding the reckless and ill-advised nature of the advances by way of calling in government guarantees at the expense of taxpayers.

The representatives of banks which have repeatedly bankrolled SAA’s massive year after year losses have, in our opinion, acted with disregard to any semblance of financial morality. If SAA had been a private company, guaranteed by the ill-advised security of a proverbial ‘mad uncle,’ responsible lenders would not have continued with such patent folly year after year for almost a decade.

It is clear that these not-insignificant loans would never have been advanced without the comfort of taxpayer-backed government guarantees. In view of the absence of any recognition of the moral delinquency evinced in seeking to profit from hard earned taxpayer funds, we believe and assert that the South African taxpayer should not be liable for the loans assumed.

It is a matter of considerable regret that those who obtained taxpayer-backed security for the credit/loans extended to SAA will be paid the R 16.4 billion owed by SAA irrespective of a vote for or against the business rescue plan – very little ventured and much to be gained at taxpayer expense.

As a small apology to South Africans who have suffered and who continue to suffer unduly as a result of these ill-advised credit/loans extended to SAA, we urge you to vote against the proposed SAA Business Rescue Plan. By doing so you will prevent at least another R16.6 billion being used to fund SAA over the next three years.

These funds are desperately needed to cope with the Corona virus as well to stimulate the economy that has been so decimated by the irrational aspects of the Covid-19 lockdown.

We urge all interested parties, particularly all creditors including banks, to vote against the proposed SAA Business Rescue Plan and to ensure that not a cent more of taxpayer money is wasted on the SAA ANC vanity project.

All south Africans are watching very closely. The responsibility of the decision lies in your hands.

Please do the right thing.

Issued by Alf Lees, DA Member of the Standing Committee on Public Accounts and Ghaleb Cachalia, DA Shadow Minister, Public Enterprise, 12 July 2020