Management at SAA Technical (SAAT) is continuing with efforts to try to pay employees at least 50% of their salaries due for March, but at this stage, is still waiting for details of "anticipated funding" from its shareholder, the Department of Public Enterprises (DPE).  

This is according to a letter to SAAT employees dated 18 March and seen by Fin24.

Unlike its parent company, South African Airways (SAA), SAAT is not in business rescue. Its operations, therefore, fall outside the domain of SAA's rescue practitioners.

In the letter, SAAT interim CEO Terrance Naidoo informs employees that the company and its employees continue to face "unprecedented times that do not only ask of us to work as one, but also to maintain resilience and courage to overcome them".

"SAAT continues with the recoveries of outstanding payments from our customers for the services rendered to them by us. As part of our recovery efforts, the company has put affected customers on terms to have monies owed to SAAT paid. Funding available to SAAT at this stage is limited, and the exco [executive committee] continues to recover more payments to SAAT in order to meet 50% payment of salaries, as a minimum," states the letter.

"Exco is aware of the individual letters of relief issued to employees stating that it was anticipated that the much-needed funding of SAAT operations from our shareholder would be processed before the end of March 2021, so employees can also be able to pay their creditors. Exco takes full ownership of the contents of such letters as it was based on our considered view and information available to exco at the time."

The letter states that engagements with the SAA board and shareholders are ongoing.

"At this stage, details around the anticipated funding are still awaited. It has come to our attention that there are views that SAAT management prioritise payment to service providers at the expense of employees, and this is definitely not the case. As you may be aware, payments or contributions to pension funds, SARS and other service providers remain outstanding where SAAT made deferred payment arrangements with affected parties."

The letter also states that SAAT have no choice but to continue purchasing requisite spares in order to enable continued operations. It is out of such operations that it can generate much-needed revenue, though limited at this stage.

'Not looking good'

Previously, before the latest letter dated 18 March, it was indicated to SAAT employees that they might get only 25% of their salaries this month.

Derek Mans, organiser for aviation and defence at union Solidarity, said on Wednesday that reduced payment is regardless of employees having worked full roster schedules. In February, only about 50% of salary amounts were paid.

"SAAT employees have basically become creditors of the company. Should something happen to SAAT and it goes into business rescue, provisional liquidation or liquidation, employees can be regarded as creditors. This is because the rest of their salaries are owed from before any such proceedings might be activated," explained Mans.  

Due to pension fund contributions for employees of SAAT not having been paid since September 2020, one of the funds is seemingly considering liquidating, according to Mans.

He pointed out that it is a criminal offence not to pay pension fund contributions unless an agreement in that regard has been reached.

"Last year we went to court on a similar situation at Denel, and the court found the company liable to pay such contributions," said Mans.

The salaries outstanding from September to December 2020 amount to about R159-million and that number is still growing.

"It is not looking good at SAAT. Our efforts to secure a meeting with the board were not successful. We have secured a meeting with the DPE," said Mans.

Solidarity's legal team is considering taking legal action against SAAT similar to the recent action undertook against Denel due to the outstanding salaries. In that matter, the Labour Court recently awarded Solidarity an attachment order.

Zero sum game?

Even getting a 25% payment this month might be too hopeful, according to a SAAT employee, who is a member of a different union. He spoke to Fin24 on the condition of remaining anonymous. The employee said the financial situation is so dire that there might be nothing to pay employees with at the end of March.

"Our only hope is to get funding from government and we are all waiting to hear from the DPE. The dilemma is that SAA's rescue practitioners have to pay out the the R7.8-billion they got from the DPE in terms of the 'waterfall' stipulated in the rescue plan," said the employee.

"SAAT cannot continue with the current financial situation. It cannot continue to wait for customers to pay so that it can pay employees and suppliers. The DPE has been saying it wants SAAT to get funding. SAAT is a national asset and SAA needs it to survive. There are new customers interested to bring us work, but we cannot accept it as we still have unfinished jobs due to a shortage of spares and no money to buy spares."

The employee says some employees are resigning due to the financial pressure they are facing.

"This is a very regulated business and by losing certain skills, SAAT could lose some necessary certificates needed to operate. That is a problem. We want to see the airline and its subsidiaries saved, but for that, funding is urgently needed," said the employee.

SAA's rescue plan was voted on and approved by the state-owned airline's creditors in July last year. The R10.3-billion plan stipulates its implementation does not cater for funding for SAA subsidiaries Mango, SAA Technical and Air Chefs. The DPE has, however, subsequently told Parliament that it wants R2.7-billion of the R10.5-billion to recapitalise those subsidiaries. 

SAA has been in business rescue since December 2019. Employees stopped getting salaries from May last year when the airline was effectively "mothballed". Since the lockdown started at the end of March 2020, only some repatriation and cargo flights have been undertaken.

Devastated industry

Naidoo responded to Fin24 on Thursday afternoon, saying that SAAT's operations were impacted by the Covid-19 national lockdown, the closing of borders, and associated travel bans.

"SAAT has been procuring spares requisite for the operations. Furthermore, SAAT is currently solvent as its total assets exceed its total liabilities. As a strategic asset, the shareholder supports the continued existence of SAAT and has committed to fund the company to see it through its current cashflow challenges and to allow it to be self-sustaining going forward," said Naidoo.    

He pointed out that the aftermath of the Covid-19 lockdown is still felt by the aviation industry at large, SAAT included.

"SAAT's customer activity remains depressed given the limited customer activity and available flights. SAAT's operations throughout the lockdown were largely on aircraft preservation, as well as service to limited cargo and repatriation flights. SAAT welcomed the re-start of flights by some of our customers, though still limited at this stage," explained Naidoo.

"Amid these challenges, SAAT continued to afford earnings to our employees throughout the hard lockdown period until now, though partial. This is the unfortunate reality posed by the unprecedented effects of the global pandemic. Furthermore, payments to some service providers had been deferred based on arrangement entered into with such providers."

He said SAAT continued to work together with all stakeholders, employees, customers and service providers to work through this unprecedented challenge as best as it can. 

"SAAT continues to express its gratitude to the commitment and patriotism displayed by our employees through these difficult times. As a collective, we believe that these storms shall pass. Our business at SAAT remains a strategic asset for future viability of the aviation activity in this part of the world, as well as for the country's economic growth through travel, import and export markets. Finally, notwithstanding the impact of Covid-19, SAAT remains a viable business," said Naidoo.

On Friday SAAT employees staged a walk out in protest of the current situation.