South Africa’s Department of Public Enterprises (DPE) is warning that the more than 50,000 employees of the national carrier could be the biggest losers if creditors and workers’ unions vote to have the airline liquidated.
A creditors meeting has been scheduled for July 14 to vote on whether to maintain the business rescue plan for the struggling South African Airways or wind it up.
SAA was placed under business rescue, a bankruptcy protection process, in December 2019 to save the cash-strapped airline from collapse.
On Friday, the Treasury said in parliament that there would be no more bailouts for SAA and that the airline should be closed.
The option for the liquidation of SAA comes after repeated government bailout efforts in the past seven years that did not sustain the flag carrier now teetering on the brink of bankruptcy.
But the public enterprises department has given a stern caution against liquidation which could “result in the protracted and costly liquidation of the airline”.
This would also mean the undervaluing and disposing of assets of SAA, the DPE said.
“As the shareholder on behalf of government, we are of the view that business rescue is a viable alternative to liquidation – one which supports job preservation and the ability to bring the airline back from the brink to a position where some employees, labour unions and creditors can continue to contribute to the South African economy and its integration into the global economy.
“The department believes in the case of liquidation, a liquidator will be appointed to consolidate the company’s assets in order to raise capital which will be distributed to the creditors when the airline is wound up.
“During the drawn-out process, creditors would in all likelihood receive a negligible dividend after all secured and preferred creditors have been paid in the liquidation proceedings.”
There is already 2.2 billion rand ($129 million) set aside for voluntary severance packages, and the DPE has urged SAA employees to take it up.
“For employees, the liquidation of SAA means they would receive a maximum of 32,000 rand ($1,885) per staff member, regardless of years of service, to the extent that there are funds available,” the DPE added. “They will only receive payment once the final liquidation and distribution account has been approved, which can take up to 24 months. Therefore it stands to reason that generally, business rescue dividends should result in a higher return for creditors than would result in a liquidation situation.”
Voluntary severance packages on the other hand can be offered to employees soon after the business rescue plan is voted for.
As per South Africa’s labour laws, voluntary retrenchment would come with packages “including one week calculated per year of completed service, one-month notice pay, accumulated leave paid out, a 13th cheque and a top-up of severance packages.”
