Cash-crunched SAA proposes termination of employee contracts

South African Airways (SAA) has issued unions with a proposal to terminate employment contracts after the government closed the taps on any further funding for the airline’s business rescue proceedings. 

The draft collective agreement given to the unions and the representatives of non-unionised employees states that because it seems unlikely that SAA will be saved as a result of the rescue process all parties must agree to a mutual termination of employment of employees by April 30.

Employees have until April 24 to confirm in writing that they accept the agreement.

Cash-strapped

On March 9 the airlines business rescue practitioners (BRPs) Les Matuson and Siviwe Dongwana issued notices to the eight recognised employee unions, as well as management to begin consultations that would affect all 4 708 employees based in South Africa reducing the number of workers to 2440, almost half. 

SAA was placed under business rescue in December 2019 and since then the airline has gone through R5.5 billion in post-commencement funding of which R2 billion was raised from local banks and R3.5 billion from the Development Bank of Southern Africa all of which were fully guaranteed by Treasury. 

Initially, the BRPs were scheduled to release the airlines restructuring plan in February but delays in government raising its share of the post-commencement funding led to them receiving an extension to March 31. More money issues caused by having to ground flights as airlines across the globe shut down due to the Covid-19 pandemic saw the release of the plan being pushed back to May 29. 

But the airline had burnt through the R5.5 billion by March leading to the BRPs approaching the Department of Public Enterprises for a further R10 billion in funding which Minister Pravin Gordhan rejected. 

In a letter to creditors, Matuson and Dongwana said they would assess the “the impact of this development on the business rescue process and will communicate any decisions to be made in due course.”

This appears to be the last nail on the coffin for the airline which has amassed R26 billion in losses in the past six years and received R20 billion in government bailouts. 

A report on the airline’s future is expected to be announced on Monday. 

Severance Packages 

Employees who agree to the termination will receive one week’s remuneration for every year of service, one month’s remuneration in place of notice pay, payment for outstanding leave and a pro-rated 13th cheque. 

The airline will have to sell its assets in order to payout severance packages.

The assets listed for sale are: 

  • property, which may be realized within 6 to 12 months;
  •  rotables, which may be realized within 12 to 24 months; and
  • trade debts, which may be collected between 6 to 12 months, depending on the financial position of the debtors.

“The payment of the severance packages as set out in [the clause] is conditional upon the assets set out… above being realized at the value capable to cover the severance packages,” the draft states

Should SAA not be able to cover the cost of the severance packages through a timely sale of assets the airline will pay the packages on a monthly basis over a period of six months once the sale has been concluded. 

If the company does not raise enough money to cover the packages altogether, employees will either “receive a pro-rated portion of the severance package, proportionate to the value of the assets that may be realised” and they are can lodge a claim for any payments that are outstanding with the liquidators of the company.  Tweet