South African Airways’ Choice: Managed Job Cuts, Liquidation

(Bloomberg) -- South African Airways administrators delivered a stark choice to those opposing their plan to fire the entire workforce and sell assets: It’s either that or full liquidation.

The state-owned carrier neither has the funds to continue trading nor pay salaries beyond the end of this month, and the government has so far refused requests for financial assistance, the team led by Les Matuson and Siviwe Dongwana said in a Thursday letter addressed to “all affected persons.”

The business-rescue practitioners sent a proposal to labor groups about retrenching all 4,700 staff on April 17, and are asking for a response by Friday. If the unions agree, the administrators can draw up a new recovery plan. If not, they will proceed with the full liquidation process, according to the letter seen by Bloomberg News. Liquidation would complicate the payment of severance packages.

Their plan has so far been opposed by both labor groups and the government’s Department of Public Enterprises, which held a video meeting earlier this week to discuss an alternative way forward. While the government said the unions had agreed to job cuts and the eventual formation of a new airline, the two biggest labor groups denied this.

‘Natural Death’

“There is no recognition that things need to be looked at differently,” said Ralph Mathekga, an analyst and author of books on South African politics. “This is the moment when SAA dies a natural death.”

SAA was cutting routes and consulting with staff about job cuts even before the coronavirus pandemic forced the grounding of all flights beyond a handful to repatriate foreign citizens. The carrier has been relying on state bailouts and debt guarantees for years, and in February the government set aside 16.4 billion rand ($862 million) over the next three years for SAA to repay creditors.

Preventing the spread of Covid-19 and shoring up the economy have since become greater priorities for the state. President Cyril Ramaphosa unveiled a 500 billion-rand economic package on Tuesday night, equivalent to about 10% of gross domestic product.

Conflicting statements from the business rescue practitioners, the government and unions over the last few days have left doubts as to who is in charge of the process.

Just over a week ago, the government cut off further funding for the airline. Two days later, the administrators said talks had started to retrench the workforce.

Then on April 21, the Department of Public Enterprises said it had spoken to unions, in a meeting that excluded the administrators, and agreed with them that a new airline would be formed and some jobs would be lost. A day later, the airline’s two biggest labor groups said the department had acted in bad faith and that there was no agreement.

A spokesman for the DPE didn’t immediately respond to a request for comment.

©2020 Bloomberg L.P.

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