- The process of approving a special appropriations bill which will include R2.7 billion for subsidiaries of SAA is currently under way in Parliament.
- Cosatu and OUTA made presentations to the Parliament's Standing Committee on Appropriations about the merits of such a step.
- Unlike SAA, its subsidiaries Mango, SAA Technical and AirChefs did not go into business rescue, yet they are in dire need of funding to stay afloat and pay debts.
Parliament's Standing Committee on Appropriations (SCOA) heard arguments on Friday about whether R2.7 billion from the R10.5 billion allocated by Treasury in last year's mini-budget to implement the business rescue plan of South African Airways (SAA) should be diverted to its subsidiaries or not.
In terms of a special appropriation bill, the process of approving is currently taking place, it would be R1.6 billion for SAAT, R819 million for Mango Airlines and R218 million for Air Chefs.
While the Organisation Undoing Tax Abuse (OUTA) presented arguments on why such a special allocation should not be made to Mango, SAAT and AirChefs, Cosatu argued that it should be made. The funding is urgently required for restructuring the subsidiaries to align them with the reduced business environment due to the impact of the Covid-19 pandemic, and to settle unpaid salaries and creditors.
Unlike SAA, its subsidiaries did not go into business rescue and, therefore, did not fall in the domain of the rescue practitioners. The SAA rescue plan adopted by creditors in July last year also does not provide for funding to subsidiaries. It does, however, mention the dire financial situation of the subsidiaries.
Cosatu's parliamentary liaison officer Matthew Parks told the committee that the union supports the special appropriation of the R2.7 billion to SAA's subsidiaries as being "critical, rational and needed".
"Cosatu looks at the SAA group in a holistic way. Until about a decade ago, SAA was rated as one of the best airlines in Africa and the world. SAA can play a critical role to link SA to the rest of the continent and the rest of the world, to the benefit of our important tourism industry," said Parks.
"People often like to demonise SAA and have the right to be critical of corruption and failures, but the SAA group and SA Express combined involve about 11 500 workers with families who have been largely unpaid since March last year. So also look at the human aspect."
According to Parks, SAAT and AirChefs have huge potential and can play critical roles. At the same time, he added that, if Mango and the other subsidiaries are in financial distress, then why are they not in business rescue?
"SAA and Mango were profitable [in the past]. We are not talking about a dead horse. But it needs restructure and repurpose. Government cannot keep on bailing them out. This must be the last time. SAA must be held accountable. It cannot have a culture of blank cheques anymore. That ship has sailed," said Parks.
Strategic value?
Aviation economist and chartered accountant Joachim Vermooten, a research associate at the University of Johannesburg (UJ), focused specifically on Mango during his presentation.
Vermooten said Mango had no strategic value in the domestic market in which it operates. There are already about five other private airlines operating.
“The domestic market is currently over-traded with too much capacity compared to demand. State aid to Mango is not acceptable. It distorts the market while other airlines must deal with the impact of Covid-19 on their own. This is discriminatory in nature and contrary to air transport policies,” said Vermooten.
"Mango has run out of money without being held accountable. Government has no explicit mandate to fund SAA's subsidiaries. There is no 'Mango or SAA Technical Act'. There are no financial statements, budgets or liability studies to support funding for the subsidiaries. The funding seems to be more for past losses and debts. There is a big hole in the government purse and if two state-owned airlines compete with each other, the hole will just increase.”
In answer to questions from committee members, he said Mango did not play a development role by flying smaller routes.
"I do not want to create the impression that I am against state carriers. SAA was profitable in the past. From 2012, its 'mission', however, seemed to have changed and it ended up making annual losses of between R5.5 billion and R6 billion. That is not necessary," said Vermooten.
"Maybe instead of closing Mango it could be restructured? That would be better than just letting it run out of money and then not paying staff or creditors."
Contrary to Companies Act?
On behalf of OUTA, its head of accountability, Stefanie Fick, argued that the issue of bailing out Mango and the other subsidiaries of SAA should be a separate issue. She claimed that there is no legal basis to allocate R2.7 billion from SAA's funding for the subsidiaries.
"We feel that a failed SOE like SAA should not receive ongoing bailouts. We want to ensure that SAA's rescue plan approved by creditors is implemented. The rescue plan does not authorise the diversion of the R2.7 billion," she said.
"Government failed to allocate the entire R10.5 billion to implement SAA's rescue plan by taking away the R2.7 billion. That is also contravening the Companies Act, which governs the business rescue process."
On behalf of National Treasury its chief director: liability management, Tshepiso Moahloli, told the committee that the special appropriation of the R2.7 billion is deemed to be the right mechanism to get the money to SAA's subsidiaries.
"No cent envisaged for SAA has been taken away by the subsidiaries. The DPE [Department of Public Enterprises] found the subsidiaries need to be funded and included the R2.7 billion in what was approved by Cabinet in the R10.5 billion. There is no contravention of the Companies Act," said Moahloli.
Frank Jenkins of Parliament's legal team is also of the view that the special appropriation bill is not against the Companies Act.
"Parliament's constitutional powers cannot be overridden by the Companies Act," he told the committee.
Before they exited the rescue process at the end of April, SAA’s rescue practitioners had to create a so-called receivership which has to deal with about R3.5 billion that still has to be paid out over the next three years in terms of the rescue plan. It is as yet unclear where this money will be coming from.