November 20, 2019 / 11:14 AM / 15 days ago

UPDATE 3-Strike pushes South African Airways to brink of collapse

* Six-day strike leaves SAA short of cash

* No sign of end to dispute over wages, jobs

* Airline may miss salary payments this month

* Critical test of Ramaphosa’s reform drive (Adds detail, context throughout)

By Alexander Winning and Emma Rumney

JOHANNESBURG, Nov 20 (Reuters) - South African Airways (SAA) has nearly no cash left and may miss salary payments this month, a board member said on Wednesday, as a crippling six-day strike has pushed the state-owned airline to the brink of financial collapse.

The standoff between SAA and two of its largest unions over wages and job cuts is a critical test of President Cyril Ramaphosa’s pledge to fix ailing state firms, which play a large role in Africa’s most industrialised economy.

But the government has few easy options to rescue SAA. The airline has received more than 20 billion rand ($1.35 billion) in bailouts over the past three years and is hobbled by an unprofitable route network and a fleet of inefficient planes.

Officials have said they want to stabilise SAA before selling an equity stake so that they can get a better price.

But the rapidity of SAA’s financial slide and ballooning state budget deficits mean the government’s commitment to salvaging the airline is being sorely tested.

SAA board member Martin Kingston told Reuters the strike was costing the airline a minimum of 50 million rand ($3.4 million) a day and that, without additional state guarantees, the board could have to recommend that the company be liquidated.

“We may not have enough cash to pay salaries at the end of the month. We are still investigating how we can do that,” he said. “This is a real-time discussion we are having with National Treasury and the Department of Public Enterprises. We need help imminently.”

Compounding the cash squeeze, the National Union of Metalworkers of South Africa (NUMSA) and South African Cabin Crew Association (SACCA) called the strike last week after SAA refused their demand for an 8% salary hike and said it planned to cut almost 20% of employees.

SAA offered a 5.9% increase. Another large union, the National Transport Movement, is considering whether to accept that offer.

Public Enterprises Minister Pravin Gordhan has said he is committed to saving SAA but the government cannot offer more financial help.

NUMSA’s spokeswoman Phakamile Hlubi-Majola said there would be “no surrender”.

NUMSA has issued catering firm Air Chefs, a subsidiary of SAA, with a letter of intent threatening a secondary strike and has secured a strike certificate over a separate issue at British Airways franchise partner Comair.

SAA said it was resuming some flights from Johannesburg to Cape Town, Durban and Victoria Falls starting on Thursday, after earlier restarting flights to six other African cities and destinations outside Africa. It has cancelled hundreds of flights since the strike started on Friday.

TOUGH CHOICES

One problem with the government’s plan is that it could be hard to convince a major global airline to buy into SAA.

SAA has not turned an annual profit since 2011 and has not published financial statements for the last two years because of auditors’ concerns.

Officials have been reluctant to relinquish a majority stake that would grant a partner management control. Having a home base at the southern tip of Africa also makes it harder for SAA to develop a hub for long-distance flights.

But if the government stops propping up SAA, the other options are also painful.

Winding down the airline could cost the government between 25 billion rand ($1.7 billion) and 40 billion rand ($2.7 billion), if SAA’s debts to lenders, fuel suppliers, leasing companies and other creditors are honoured, according to calculations by analysts and SAA.

If the company enters business rescue, officials think it will quickly collapse. That would be probably be less costly for the government as it could avoid paying some creditors, but officials would have less control over the politically sensitive process of laying off SAA’s 5,000 staff.

Some analysts and opposition politicians say SAA should be shuttered to preserve precious fiscal resources.

“The best thing would be for SAA to go into liquidation and stop the bleeding. The impact on the economy would be minimal as other airlines would quickly fill the gap,” said Alf Lees, a lawmaker with the Democratic Alliance party.

Gary van Staden, a political analyst at NKC African Economics, said the SAA crisis showed Ramaphosa needed to act decisively to revive economic growth.

“If he blinks now, he will find it that much harder in future to demonstrate his determination to take the tough decisions that any prospect of economic recovery requires. SAA is simply not worth saving,” van Staden said.

($1 = 14.7792 rand)

Additional reporting by Olivia Kumwenda-Mtambo Editing by Dale Hudson, Elaine Hardcastle and James Drummond

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