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Open Letter to the BR Practitioner of SAA

Author :  

Tough Questions to the Business Rescue Practitioner of SAA


From: Alastair Macduff
Director: Unleash Business Services

Dear Les

I would like to congratulate you on your appointment as the business rescue practitioner (“BRP”) of SAA. It is satisfying that a member of the Turnaround Management Association of Southern Africa was chosen for this critical appointment. We know that the success of the business rescue process is dependent on the ability of the BRP to be totally independent in representing the interests of all affected parties. In the case of SAA, it is even more important that you can find answers to the tough questions that need to be asked, in order to find solutions and devise a turnaround strategy for the airline. I know that you will demand answers no matter what the implications or repercussions may be.

The public has been aware that SAA has been in distress for many years and yet the previous CEO and the board of directors did nothing to stop the bleeding and staunch the drain on cash flow. Ongoing gross mismanagement forced President Cyril Ramaphosa and Minister Pravin Gordhan to intervene and instructed the board to place the company into business rescue. The failure of SAA has resulted in what will be the biggest business rescue in South African history.

The management dynamics at SAA will change dramatically now that they are under your control. No doubt you will appoint suitably qualified independent aviation experts to start immediate investigations into the causes of the failure of the airline. Your wide ranging powers allow you a lot of latitude in how to approach your analysis of the situation but you will be working to very tight deadlines to table your initial report to creditors. You then have to come up with a feasible business rescue plan that is acceptable to all affected parties, employees, creditors and of course the SA Government as the only shareholder.

Furthermore the BR plan will be of national interest because in a competitive market if SAA is not sustainable for the long term it is inevitable that the tax payer will carry the cost. In fact it could be argued that SAA must be sustainable in the long run on competitive a basis against other commercial airlines without government support or subsidy.

To this end some questions, relevant to a wider base of stakeholders than only those who are defined as affected parties under business rescue, come to mind.

Questions that need to be answered:

1. Can SAA be saved?
You have already started your investigation into the affairs of SAA and in terms of Chapter 6 of the Companies Act you will have to table a statement at the 1st meeting of Creditors that “there is a reasonable prospect of SAA being rescued”

  • What will be the basis of this statement?
  • Why do you think you will succeed when no-one else has been capable of doing so?

2. What are the major causes of SAA’s collapse and how will you fix the problems?

  • When will you give us a high level review of your findings?
  • - What is your strategy to save the airline?

3. How are you going to keep the SA Government and Treasury and other influential stakeholders etc from influencing your running of the BR process?

4. If you find any evidence of reckless trading, fraud or any other contraventions of law, how soon will you be forwarding the evidence to the appropriate authorities such as the Hawks for further investigation and possible prosecution?

It is widely speculated the awarding of service level agreements has been open to abuse and that extortionate prices have been paid in the past.

  • - Will you conduct a forensic audit by appointing a team of independent auditors to review every single contract? This has been done recently for Steinhoff and EOH so it is reasonable to expect it to be done for a SOE as well.
  • - As BRP you have the power suspend any agreement, will you be using these powers?
  • - Will you be laying criminal charges against staff and contractors who are found guilty of fraud?
  • - When will you be directing SAA management to recover any misappropriated assets of the company as you are required to do by the Companies Act?

5. When are you going to appoint a new top-management team?

Previous management has been the main cause of failure and needs to be replaced, unless this happens nothing changes and the losses will continue to mount up. You will need to appoint aviation experts and hopefully you are looking at recruiting from the best available managers in the international airline pool.

6. How are you going to balance the conflicting demands of commercial realty with the demands of the Labour Unions?

7. It is rumoured that there are more than 300 financial mangers employed by SAA which seems excessive – can you confirm this?

When will you be investigating the administrative costs of the airline to bring it into line with internationally acceptable costs per passenger?

8. Do you have an accurate cash flow forecast that gives the monthly cash burn?

  • What is the state of the accounting system and can you place reliance on reports it generates, given that annual financial statements have not been signed off by the auditors or the board for the last 2 financial years.
  • Is there an accurate costing system in place?
  • Have you been able to review the annual budgets signed off by the board?

9. How long will the post commencement finance loans of R4bn last?

  • How many months operating costs will this cover?
  • What will you do when the money runs out?

10. How long will the business rescue process take?

The current operations cannot continue for more than six months before you run out of money – what are your fall back options?

11. What surplus/non-productive assets can you sell to raise cash?

You need to generate cash immediately by selling off surplus assets, please provide a list and an estimate of realisable value.

12. How are you going to win back passenger confidence?

  • Why should we support SAA and book our next holiday ticket with SAA?
    What guarantee will you give me that we won’t lose my money if the flights are cancelled for whatever reason? Furthermore there is also a perception that a SAA airline ticket is more expensive than other airlines operating on the same routes.
  • Do you have a marketing plan, if so what is it?

13. Why did you take on this rescue and what do you think the final costs of the business rescue process will be?

We wish you every success in this business rescue and you have the whole nation is holding its breath and supporting the business rescue for a positive outcome!

Alastair Macduff




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