The administrators of South African Airways (SA, Johannesburg O.R. Tambo) have confirmed they have received ZAR1.5 billion (USD97.9 million) in state funding to execute the airline’s business rescue plan, but cannot disburse the funds because conditions stipulated by the government contravene South Africa’s Labour Relations and Companies Act.

This comes as disgruntled SAA employees picketed outside the airline’s Kempton Park head office on December 3 demanding to be paid. The members of the National Union of Metalworkers of South Africa (NUMSA) and the South Africa Cabin Crew Association (SACCA) said they had not been paid for eight months. “Monies were allocated to the airline last month to fund the business rescue plan and the restructuring of the airline by Treasury, but workers have still not been paid, and yet the business rescue practitioners (BRPs) earn millions in fees and they continue to be paid. It is December and holidays are around the corner, but workers have no idea where their next meal will come from,” NUMSA charged in a statement.

“ZAR1.5 billion was received from the Department of Public Enterprises (DPE) on Monday afternoon. However, the conditions that were stipulated for how it should be spent are in contravention of both the Labour Relations Act and Chapter 6 of the Companies Act. So, we are unable to utilise the funds until the conditions have been amended by the DPE,” ch-aviation was told by Louise Brugman, spokesperson for SAA’s administrators Les Matuson and Siviwe Dongwana.

The money is part of a ZAR10.5 billion (USD684.8 million) state bail-out for SAA – funds that were diverted from other departmental budgets with the specifically stated aim of implementing the business rescue plan and restructuring the carrier. A sum of ZAR800 million (USD38.9 million) was allocated in the plan to employees and general (unsecured post-commencement) creditors.

The administrator’s dilemma appears related to DPE’s recent unilateral decision to deviate from the approved business rescue plan by allocating ZAR2.7 billion (USD176.1 million) for the recapitalisation of SAA’s subsidiaries Mango Airlines (MNO, Johannesburg O.R. Tambo), SAA Technical, and Air Chefs – none of which are in business rescue and for which no cash-flow allowance was made in SAA’s restructuring plan.

According to the Companies Act, disbursement of the funds should happen according to a “waterfall” of priorities, which makes no provision for pay-outs to SAA’s subsidiaries. Under the terms of the Companies Act, post-commencement employees are third in line to be paid. All business rescue costs (including legal, costs of administrators, and operating costs) must be paid off first. Second in line are the pre-commencement secured creditors (lenders), to whom the government has already paid ZAR10 billion (USD652.6 million) of ZAR16.4 billion (USD1 billion) owed.

Meanwhile, NUMSA and SACCA said they had laid criminal charges at the Kempton Park police station on December 3 against the SAA board and SAA/SAA Technical executives who had been in office between 2016 and 2020 (including managers still employed) “for their failure to execute their fiduciary duties and for allowing corruption to take place through white-collar crime”. “They took no action as corruption, fraud, and theft took place, collapsing these state-owned entities,” the unions charged. “This management has squandered workers’ pensions, medical aid, tax, and UIF (Unemployment Insurance Fund) contributions, which has led to some of our members not receiving their pension. It is also our view that some executives at SAA are deliberately destroying the airline and sabotaging the restructuring process. They are not complying with the business rescue plan. They are retaining only 1,400 employees, instead of 2,000 as initially planned. Our members at SAA are fed up,” the unions said. According to the restructuring plan, 1,000 SAA employees would be retained, while another 1,000 would be placed on a 12-months training lay-off scheme.

DPE spokesperson Richard Mantu said the department would issue a statement in response to NUMSA and SACCA later in the day.

He declined to elaborate on a news report that DPE was in talks with Fairfax Africa Holdings, the listed subsidiary of Toronto-based investment firm Fairfax Financial Holdings, over equity shareholding in SAA. "The process of identifying a strategic equity investor is at an advanced stage and once the process is finalised, we will make an announcement on the details including the strategic equity partner share," Mantu told ch-aviation. "The equity stake for the restructured new SAA will be guided by the agreed valuations and the (strategic equity partner) investment."

DPE previously announced it had appointed Rand Merchant Bank as the transactional adviser and was evaluating at least 10 potential investment proposals, but stopped short of confirming that an approach by Ethiopian Airlines (ET, Addis Ababa International) for a management deal was being considered.