SAA running out of time

South African Airways (SAA) only has until the end of this year to appoint a permanent board to run the struggling state-owned company (SOC).

The Minister of Planning, Monitoring and Evaluation, Maropene Ramokgopa, revealed this in response to a Parliamentary question from EFF MP Omphile Mankoba Confidence Maotwe.

In her question, Maotwe referenced former Public Enterprises Minister Pravin Gordhan’s advertisement of executive roles at SAA at the end of the sixth administration.

She asked about the validity of that process, considering that the cabinet’s appointment of the SAA board at the time was made on an interim basis.

In addition, she asked Ramokgopa when she intends to appoint a permanent SAA board and what measures have been taken to facilitate and expedite this process.

Ramokgopa clarified that, according to SAA’s Memorandum of Incorporation, its board is responsible for recruiting and selecting SAA executives.

In particular, SAA’s board is responsible for appointing a Chief Executive Officer and Chief Financial Officer, not the executive authority. 

Therefore, she said the recruitment process Maotwe referenced remains valid even though the SAA board was appointed on an interim basis.

Furthermore, the Companies Act 71 of 2008 does not distinguish between interim and permanent directors.

Section 1 of the Companies Act defines a ‘director’ as a member of a company’s board, as contemplated in section 66, or an alternate director of a company, and includes any person, regardless of their title.

Ramokgopa further revealed that the term of office for SAA’s current board expires on 31 December 2024. 

“The process of appointing a permanent Board will be completed before the current Board’s term expires,” she said.

She added that stabilising the boards of SOCs within the department’s portfolio is one of the top priorities for South Africa’s new administration. 

“The appointment of new permanent boards, including that of SAA, will ensure leadership stability and effective governance,” she said.

This comes while SAA is currently undergoing a turnaround after years of struggling to become profitable and becoming a drain on the fiscus.

SAA has faced significant financial and operational challenges in the past few years, partly due to several factors, including state capture and corruption.

As a result, its board placed SAA in business rescue on 6 December 2019 to restructure the company and strengthen its balance sheet.

The government gave SAA money as “post-commencement funding” to enable operations to continue while the business rescue plan was being developed.

This also enabled the repatriation of South African citizens stranded in other countries during the COVID-19 pandemic lockdown in 2020.

The business rescue plan was developed, and the creditors adopted the business rescue plan on 14 July 2020.

The airline was later restructured, staff numbers were reduced, compromises were reached with creditors, and the business rescue was exited on 30 April 2021.

The airline recommenced operations in September 2021 with limited local and international routes. Today, the company is still struggling but in the midst of a turnaround.

SAA recently revealed grand expansion plans, which include adding more destinations on the continent from its hub in Johannesburg. This came after a deal with a potential investor collapsed earlier this year.

The government had planned to sell 51% of SAA to the Takatso group—made up of closely held Global Airways and private equity firm Harith General Partners—before the deal was called off in March this year.

The deal would have resulted in a R3 billion cash injection for the airline, but collapsed after the parties involved failed to agree on a fair value for the airline.

“SAA will revert to be 100% owned by the state,” Gordhan said when it was announced that the deal was off. 

“We are convinced that SAA can sustain itself in the next year to 18 months and that there are various other ways in which immediate financing can be obtained. But at no stage will SAA will get money from the fiscus.” 

SAA interim CEO John Lamola reiterated this point at the time, telling Bloomberg that SAA is a “cash-positive” company that will be able to survive independently in the next 12 to 18 months.

“Our strategic position is to differentiate ourselves as a national flag carrier to be able to offer the country the connectivity with key investment and trading partners,” he said.

Lamola said that while South African Airways won’t seek bailouts, it would ask for sovereign guarantees to expand over the next three years. 

Therefore, once appointed, SAA’s permanent board will need to lead SAA’s turnaround without help from the state’s coffers – a challenging task for a company that has had to receive R33.1 billion from the government over the last five years.

According to Ramokgopa, the interim SAA board will need to appoint the permanent board that will lead this turnaround before the end of the year.